14.3
Weather Risk Hedging
PYTHON PLUGIN
Miscellaneous
Hedging
Description
Strategy 14.3: Trade weather futures based on degree-day forecasts vs futures pricing
Strategy Logic
Strategy 14.3: Weather Risk Hedging with Weather Derivatives.
Hedge weather-dependent demand using weather futures / options.
Degree day indices:
CDD = sum(max(T_i - 65, 0)) (Cooling Degree Days)
HDD = sum(max(65 - T_i, 0)) (Heating Degree Days)
Hedge ratio:
h_futures = Cov(q_weather, Index) / Var(Index)
where q_weather is the weather-sensitive component of demand.
Signal: buy/sell weather futures based on degree-day forecasts vs
current futures pricing.
Required columns: temperature (daily avg), futures_price,
forecast_temperature (optional)
Falls back to close-based proxy if temperature data unavailable.
Parameters
| Parameter | Default Value | Type |
|---|---|---|
| base_temp | 65.0 | float |
| lookback | 30 | int |
| mode | hdd | str |
| forecast_premium_pct | 0.05 | float |
Risk Configuration
| Risk Parameter | Value |
|---|---|
| Max Position Pct | 6.0% |
| Stop Loss Pct | 8.0% |
| Take Profit Pct | 12.0% |
| Max Drawdown Pct | 15.0% |