Really nice video! I think it would be really great if you could also show how to calibrate the lambda in the Monte-Carlo approach from traded option prices.
The term Hedging temperature, can be done, and would refer to hedging the risk of price changes that are sensitive to prices in temperature. For example oil, electricity, grain, gas all have products that are extremely dependent on temperature. You can hedge temperature risk by purchasing or selling weather derivatives. But to your questions risk neutral is a probability measure that means there is a no-arbitrage environment.
Another great vid. Awesome job!
Really nice video! I think it would be really great if you could also show how to calibrate the lambda in the Monte-Carlo approach from traded option prices.
Awesome videos, just found out about your channel. Keep it up!
wut this is dope
What does risk neutral mean here? I don’t think you can hedge temperature. So the risk is never neutral.
Risk neutral refers to probability of future outcomes adjusted for risk.
The term Hedging temperature, can be done, and would refer to hedging the risk of price changes that are sensitive to prices in temperature. For example oil, electricity, grain, gas all have products that are extremely dependent on temperature.
You can hedge temperature risk by purchasing or selling weather derivatives.
But to your questions risk neutral is a probability measure that means there is a no-arbitrage environment.