Abstract
In this article, we investigate an equilibrium price and volume for the weather derivative by using the utility indifference pricing approach. The underlying index of the derivative is not to be traded in the financial market, or is quite illiquid. So this derivative market is an incomplete. The indifference price method have been applied to evaluate derivatives in the incomplete market model up to now. We suppose that the market participant is the company and it trades weather derivatives. We derive the buyer's indifferece price and the seller's one for the derivative respectively, then we provide the equilibrium condition about the price and the traded amount, and also give the condition to settle transactions for the derivative. We also illustrate equilibrium prices and quantities, and effects of parameters (such as expected growth rate and volatilities of the buyer's business, etc.) on equilibrium values.
