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1.Efficiency of Weather Derivatives: A Study of Rice and Wheat in China

Author:Ender, M;Zhang, RY

Source:INTERNATIONAL CONFERENCE ON EDUCATION AND SOCIAL SCIENCES (INTCESS14), VOLS I AND II,2014,Vol.

Abstract:The efficiency of temperature-based weather derivatives (WD) in reducing risk exposure for Chinese agriculture industry is analyzed in this paper. Therefore, a put option with cumulated growing degree days as its underlying index is assumed to be bought by a farmer as a risk management instrument. A weather-yield model is constructed to find a suitable regression model to predict the crop yield based on weather variables. Through comparing the producers' revenue with and without WD for 57 years, efficiency criteria as risk measures are calculated. The study includes rice and wheat production in the area of Shanghai and Beijing. The results of the efficiency tests show that temperature-based put options are an efficient risk reducing instrument in offsetting yield shortfalls for rice and wheat in China.

2.Specification analysis in regime-switching continuous-time diffusion models for market volatility

Author:Bu, R;Cheng, J;Hadri, K

Source:STUDIES IN NONLINEAR DYNAMICS AND ECONOMETRICS,2017,Vol.21

Abstract:We examine model specification in regime-switching continuous-time diffusions for modeling S&P 500 Volatility Index (VIX). Our investigation is carried out under two nonlinear diffusion frameworks, the NLDCEV and the CIRCEV frameworks, and our focus is on the nonlinearity in regime-dependent drift and diffusion terms, the switching components, and the endogeneity in regime changes. While we find strong evidence of regime-switching effects, models with a switching diffusion term capture the VIX dynamics considerably better than models with only a switching drift, confirming the presence and importance of volatility regimes. Strong evidence of nonlinear endogeneity in regime changes is also detected. Meanwhile, we find significant nonlinearity in the regime-dependent diffusion specification, suggesting that the nonlinearity in the VIX dynamics cannot be accounted for by regime-switching effects alone. Finally, we find that models based on the CIRCEV specification are significantly closer to the true data generating process of VIX than models based on the NLDCEV specification uniformly across all regime-switching specifications.
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