Publication Cover
The Engineering Economist
A Journal Devoted to the Problems of Capital Investment
Volume 66, 2021 - Issue 2
546
Views
5
CrossRef citations to date
0
Altmetric
Articles

Managing construction risk with weather derivatives

, & ORCID Icon

References

  • Aecon-Group (2018). Management’s discussion and analysis of operating results and financial condition. Toronto, CA: Aecon Group Inc.
  • Alexandridis, A. K., & Zapranis, A. D. (2013). Weather derivatives. New York: Springer.
  • Alzarrad, M. A., Moynihan, G., & Vereen, S. (2017). Weather derivatives as a risk management tool for construction projects. 6th CSCE/CRC International Construction Specialty Conference, Vancouver, Canada.
  • Anderson, E., Xu, H., & Zhang, D. (2014). Confidence levels for cvar risk measures and minimax limits. Working Papers 2014_01, University of Sydney Business School, Discipline of Business Analytics.
  • Ballesteros-Pérez, P., Alexis Rojas-Céspedes, Y., Hughes, W., Kabiri, S., Pellicer, E., Mora-Melià, D., & del Campo-Hitschfeld, M. L. (2017). Weather-wise: A weather-aware planning tool for improving construction productivity and dealing with claims. Automation in Construction, 84, 81–95. doi:10.1016/j.autcon.2017.08.022
  • Ballesteros-Pérez, P., Thor Smith, S., Gwen Lloyd-Papworth, J., & Cooke, P. (2018). Incorporating the effect of weather in construction scheduling and management with sine wave curves: Application in the United Kingdom. Construction Management and Economics, 36(12), 1–17. doi:10.1080/01446193.2018.1478109
  • Benth, F. E., & Benth, J. Š. (2007). The volatility of temperature and pricing of weather derivatives. Quantitative Finance, 7 (5), 553–561. doi:10.1080/14697680601155334
  • Bilal, M., Oyedele, L. O., Qadir, J., Munir, K., Ajayi, S. O., Akinade, O. O., … Pasha, M. (2016). Big data in the construction industry: A review of present status, opportunities, and future trends. Advanced Engineering Informatics, 30 (3), 500–521. doi:10.1016/j.aei.2016.07.001
  • Brody, D. C., Syroka, J., & Zervos, M. (2002). Dynamical pricing of weather derivatives. Quantitative Finance, 2(3), 189–198. doi:10.1088/1469-7688/2/3/302
  • Canada, C. C. (2016a). El ni˜no. Government of Canada. Retrieved from https://www.canada.ca/en/environment-climate-change/services/la-nina.html
  • Canada, C. C. (2016b). La ni˜na. Government of Canada. Retrieved from https://www.canada.ca/en/environment-climate-change/services/la-nina.html
  • Cao, M., & Wei, J. (2003). Weather derivatives: A new class of financial instruments. Available: SSRN: https://assrn.com/abstract=1016123.
  • Cao, M., & Wei, J. (2004). Weather derivatives valuation and market price of risk. Journal of Futures Markets, 24 (11), 1065–1089. doi:10.1002/fut.20122
  • Cao, M., & Wei, J. (2005). Stock market returns: A note on temperature anomaly. Journal of Banking & Finance, 29(6), 1559–1573. doi:10.1016/j.jbankfin.2004.06.028
  • Chan, E. H., & Au, M. C. (2007). Building contractors’ behavioural pattern in pricing weather risks. International Journal of Project Management, 25 (6), 615–626. doi:10.1016/j.ijproman.2007.01.017
  • Chapman, C., & Ward, S. (1994). The efficient allocation of risk in contracts. Omega, 22 (6), 537–552. doi:10.1016/0305-0483(94)90046-9
  • Charpentier, A., Fermanian, J.-D., & Scaillet, O. (2007). The estimation of copulas: Theory and practice. In: J. Rank (Ed.), Copulas: from theory to application in finance (pp. 35–64). London: Risk Books.
  • Chen, G., Roberts, M. C., & Thraen, C. S. (2006). Managing dairy profit risk using weather derivatives. Journal of Agricultural and Resource Economics, 31 (3), 653–666.
  • CME (2015). Weather futures and options. Retrieved from https://www.cmegroup.com/trading/weather/files/weather-futures-and-options-fact-card.pdf
  • Cong, R.-G., & Brady, M. (2012). The interdependence between rainfall and temperature: Copula analyses. 405–675. doi:10.1100/2012/405675
  • Connors, R. B. (2003). Weather derivatives allow construction to hedge weather risk. Cost Engineering Journal 45, 21–24.
  • Cont, R. (2006). Model uncertainty and its impact on derivative instruments. Math. Finance, 16, 519–547.
  • Cyr, D., Kusy, M., & Shaw, A. B. (2010). Climate change and the potential use of weather derivatives to hedge vineyard harvest rainfall risk in the niagara region. Journal of Wine Research, 21 (2-3), 207–227. doi:10.1080/09571264.2010.530112
  • Dunis, C. L. & Vassilios, (2003). Weather derivatives prcing and filling analysis for missing temperature data. Derivatives Use, Trading and Regulation, 9 (1), 61–83.
  • Elias, M. R-U S., Wahab, M. I. M., & Fang, L. (2017). Integrating weather and spark spread options for valuing a natural gas-fired power plant with multiple turbines. The Engineering Economist, 62 (4), 293–321. doi:10.1080/0013791X.2016.1258746
  • Ender, M., & Zhang, R. (2015). Efficiency of weather derivatives for Chinese agriculture industry. China Agricultural Economic Review, 7 (1), 102–121. doi:10.1108/CAER-06-2013-0089
  • Finke, M. (1990). Weather-related delays on government contracts. Transactions of the American Association of Cost Engineers, (p. 51). American Association of Cost Engineers.
  • Fiolet, J.-C., Haas, C., & Hipel, K. (2016). Risk-chasing behaviour in on-site construction decisions. Construction Management and Economics, 34 (12), 845–858. doi:10.1080/01446193.2016.1207790
  • Glasserman, P., & Xu, X. (2014). Robust risk measurement and model risk. Quantitative Finance, 14 (1), 29–58. doi:10.1080/14697688.2013.822989
  • Groningen, J. V. (2012). Weather Derivatives as a Hedging Tool for Construction Firms (Master Thesis). Tilburg, Netherlands: Tilburg University.
  • Hendrickson, C. (1989). Project management for construction: Fundamental concepts for owners, engineers, architects, and builders. Englewood Cliffs, NJ: Prentice-Hall.
  • Hughes, W., Champion, R., & Murdoch, J. (2015). Construction contracts. London: Routledge.
  • Ibbs, W., & Sun, X. (2017). Weather’s effect on construction labor productivity. Journal of Legal Affairs and Dispute Resolution in Engineering and Construction 9(2), 04517002.
  • Isaac, G. A., & Stuart, R. A. (1992). Temperature–precipitation relationships for Canadian stations. Journal of Climate, 5, 822–830. doi:10.1175/1520-0442(1992)005<0822:TRFCS>2.0.CO;2
  • Jones, E., Oliphant, T., & Peterson, P. (2001). SciPy: Open source scientific tools for Python. Retrieved from http://www.scipy.org/
  • Jung, M., Park, M., Lee, H.-S., & Kim, H. (2016). Weather-delay simulation model based on vertical weather profile for high-rise building construction. Journal of Construction Engineering and Management, 142 (6), 04016007. doi:10.1061/(ASCE)CO.1943-7862.0001109
  • Kalteh, A. M., & Hjorth, P. (2009). Imputation of missing values in a precipitation–runoff process database. Hydrology Research, 40(4), 420–432. doi:10.2166/nh.2009.001
  • Kendrick, T. (2012). What are the chances?: Overcoming barriers in assessing risk probabilities. Paper presented at PMI® Global Congress 2012—North America, Vancouver, British Columbia, Canada. Newtown Square, PA: Project Management Institute.
  • Koehen, E., & Brown, G. (1985). Climactic effect on construction. Journal of Construction Engineering and Management, 11 (2), 129–137. doi:10.1061/(ASCE)0733-9364(1985)111:2(129)
  • Kohonen, T. (1990). The self organizing map. Proceedings of the IEEE, 78 (9), 1464–1480. doi:10.1109/5.58325
  • Krokhmal, P., Palmquist, J., & Uryasev, S. (2003). Portfolio optimization with conditional value-at-risk objective and constraints. Journal of Risk, 4, 43–68.
  • Lapez Cabrera, B., Odening, M., & Ritter, M. (2013). Pricing rainfall derivatives at the cme (SFB 649 Discussion Papers No. SFB649DP2013-005). Collaborative Research Center 649. Berlin, Germany: Humboldt University.
  • Laryea, S., & Hughes, W. (2008). How contractors price risk in bids: Theory and practice. Construction Management and Economics, 26 (9), 911–924. doi:10.1080/01446190802317718
  • Lee, J., Sun, D., Sun, Y., E., & Taylor, J. (2016). Exact post-selection inference, with application to the lasso. The Annals of Statistics, 44, 907–927. doi:10.1214/15-AOS1371
  • Leggio, K. B. (2007). Using weather derivatives to hedge precipitation exposure. Managerial Finance, 33 (4), 246–252. doi:10.1108/03074350710721497
  • Leggio, K. B., & Lien, D. (2002). Hedging gas bills with weather derivatives. Journal of Economics and Finance, 26 (1), 88–100. doi:10.1007/BF02744454
  • Li, A., Cao, M., & Wei, J. Z. (2007). Precipitation modeling and contract valuation: A frontier in weather derivatives. The Journal of Alternative Investments, 7(2), 93–99. doi:10.3905/jai.2004.439656
  • Mason, J. (2016). Construction law: From beginner to practitioner. London, UK: Routledge.
  • Mehra, R., & Prescott, E. C. (1985). The equity premium: A puzzle. Journal of Monetary Economics, 15 (2), 145–161. doi:10.1016/0304-3932(85)90061-3
  • Meucci, A. (2005). The quest for invariance. Reading, Massachusetts: Springer.
  • Moselhi, O., Gong, D., & El-Rayes, K. (1997). Estimating weather impact on the duration of construction activities. Canadian Journal of Civil Engineering, 24 (1), 359–366. doi:10.1139/l96-122
  • Nagler, T. (2014). Kernel methods for vine copula estimation (Masterarbeit). Munich, Germany: Technische Universität München.
  • Nguyen, L., Kneppers, J., Garc´Ia de Soto, B., & Ibbs, C. (2010). Analysis of adverse weather for excusable delays. Journal of Construction Engineering and Management, 136(12), 1258–1267. doi:10.1061/(ASCE)CO.1943-7862.0000242
  • Odeyinka, H., Lowe, J., & Kaka, A. (2008). An evaluation of risk factors impacting construction cash flow forecast. Journal of Financial Management of Property and Construction, 13 (1), 5–17. doi:10.1108/13664380810882048
  • Pirrong, C., & Jermakyan, M. (2008). The price of power: The valuation of power and weather derivatives. Journal of Banking & Finance, 32 (12), 2520–2529. doi:10.1016/j.jbankfin.2008.04.007
  • Ponce, D. L., Klanac, G. P., & Edwards, W. H. (1993). Liquidated damages for multi-prime projects. Transactions of AACE International, (p. 11). American Association of Cost Engineers.
  • Russell, J. L., & Pilot, M. J. (1969). Seasonality in construction: A continuing problem. Monthly Labor Review, 92 (12), 3–8. Retrieved from http://www.jstor.org/stable/41837527
  • Scott, D. (2010). Scott’s rule. Wiley Interdisciplinary Reviews: Computational Statistics, 2 (4), 497–502. eprint: https://onlinelibrary.wiley.com/doi/pdf/10.1002/wics.103 doi:10.1002/wics.103
  • Seck, B., Andrieu, L., & De Lara, M. (2012). Parametric multi-attribute utility functions for optimal profit under risk constraints. Theory and Decision, 72 (2), 257–271. doi:10.1007/s11238-011-9255-6
  • Shahin, A., AbouRizk, S., Mohamed, Y., & Fernando, S. (2007). A simulation-based framework for quantifying the cold regions weather impacts on construction schedules. 2007 Winter Simulation Conference, Washington, DC.
  • Shahin, A., AbouRizk, S., & Mohamed, Y. (2011). Modeling weather-sensitive construction activity using simulation. Journal of Construction Engineering and Management, 137 (3), 238–246. doi:10.1061/(ASCE)CO.1943-7862.0000258
  • Sharpe, D. (1987). Quaternary geology of Toronto area, Ontario. Northeastern section of the geological society of America. Geological society of america. Retrieved from 10.1130/0-8137-5405-4.339.
  • Stock, J., & Watson, M. (2011). Introduction to econometrics (3rd ed.). Professor Stock receives royalties for this text. Boston: Addison Wesley Longman.
  • Stowasser, M. (2011). Modelling rain risk: A multi-order markov chain model approach. The Journal of Risk Finance, 13 (1), 45–60. doi:10.1108/15265941211191930
  • Surahyo, A. (2018). Understanding Construction Contracts: Canadian and International Conventions. Berlin, Germany: Springer. doi:10.1007/978-3-319-66685-3
  • Taştan, B., & Hayfavi, A. (2017). Modeling temperature and pricing weather derivatives based on temperature. Advances in Meteorology, 2017, 1–14. doi:10.1155/2017/3913817
  • Thomas, R., & Yiakoumis, I. (1987). Factor model of construction productivity. Journal of Construction Engineering and Management, 113(4), 623–639. doi:10.1061/(ASCE)0733-9364(1987)113:4(623)
  • Turvey, C. (2001). Weather derivatives for specific event risks in agriculture. Review of Agricultural Economics, 23(2), 333–351. doi:10.1111/1467-9353.00065
  • Vedenov, D., & Barnett, B. (2004). Efficiency of weather derivatives as primary crop insurance instruments. Journal of Agricultural and Resource Economics, 29.
  • Weagley, D. R. (2014). Essays on the weather derivatives market (Unpublished doctoral dissertation). Business Administration, University of Michigan, Ann Arbor, MI.
  • Wilks, D. (1998). Multisite generalization of a daily stochastic precipitation generation model. Journal of Hydrology, 210 (1-4), 178–191. doi:10.1016/S0022-1694(98)00186-3
  • Xu, T., & Tiong, R. L. (2001). Risk assessment on contractors’ pricing strategies. Construction Management and Economics, 19(1), 77–84. doi:10.1080/01446190010002561

Reprints and Corporate Permissions

Please note: Selecting permissions does not provide access to the full text of the article, please see our help page How do I view content?

To request a reprint or corporate permissions for this article, please click on the relevant link below:

Academic Permissions

Please note: Selecting permissions does not provide access to the full text of the article, please see our help page How do I view content?

Obtain permissions instantly via Rightslink by clicking on the button below:

If you are unable to obtain permissions via Rightslink, please complete and submit this Permissions form. For more information, please visit our Permissions help page.