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Modelling and forecasting wind speed intensity for weather risk management

Massimiliano Caporin and Juliusz Pres
Additional contact information
Juliusz Pres: Szczecin University of Technology

No 106, "Marco Fanno" Working Papers from Dipartimento di Scienze Economiche "Marco Fanno"

Abstract: The modelling of wind speed is a traditional topic in meteorological research, where the main interest is on the short-term forecast of wind speed intensity and direction. More recently, this theme has received some interest in the quantitative finance literature for its relationship with electricity production by wind farms. In fact, electricity producers are interested in long-range forecasts and simulation of wind speed for two main reasons: to evaluate the profitability of building a wind farm in a given location and to offset the risks associated with the variability of wind speed for an already operating wind farm. In this paper, we contribute to the increasing literature regarding environmental finance by comparing three approaches that are capable of forecasting and simulating the long run evolution of wind speed intensity (direction is not a concern, given that the recent turbines can rotate to follow wind direction): the Auto Regressive Gamma process, the Gamma Auto Regressive process, and the ARFIMA-FIGARCH model. We provide both in-sample and out-of-sample comparisons of the models, as well as some examples for the pricing of wind speed derivatives using a model-based Monte Carlo simulation approach.

Keywords: Gamma Auto Regressive; Auto Regressive Gamma; ARFIMA-FIGARCH; wind speed modelling; wind speed simulation (search for similar items in EconPapers)
JEL-codes: C22 C53 G13 G17 G22 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2010-01
New Economics Papers: this item is included in nep-ene and nep-for
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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https://economia.unipd.it/sites/economia.unipd.it/files/20100106.pdf (application/pdf)

Related works:
Journal Article: Modelling and forecasting wind speed intensity for weather risk management (2012) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:pad:wpaper:0106

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