Spatial Aggregation and Weather Risk Management



Table 3a. Hedging Results of Historical Simulation,

Out-of-Sample Estimates, 1987-2002

Hedged: Call Option

Average of

Districts_______

State

(Aggregated)

MRSL

25.56

19.65

Change MRSL

-5.93

-6.78

% Change MRSL

-16.85

-25.66

ES 6%

268.41

291.85

ES 9%_____________

279.96

______________296.17

aThe table presents out-of-sample estimates for the

second half of the data period (1987-2002) when
hedging with call options. Out-of-sample estimates are
obtained by applying the optimal hedge estimated from
the first half of the data period to the second.

32



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