Risk valuation of quanto derivatives on temperature and electricity

This paper develops a coupled model for day-ahead electricity prices and average daily temperature which allows to model quanto weather and energy derivatives. These products have gained on popularity as they enable to hedge against both volumetric and price risks. Electricity day-ahead prices and average daily temperatures are modelled through non homogeneous Ornstein-Uhlenbeck processes driven by a Brownian motion and a Normal Inverse Gaussian Lévy process, which allows to include dependence b...