The main objective of this paper is to discuss suitable methods for the modelling of weather
variables and to bring together much of the current thinking in terms of the pricing of their
respective derivative contracts (CDD, HDD) with payoffs depending on temperature. In
addition to the theoretical overview provided, an empirical investigation is undertaken using
historical data from the De Bilt meteorological station: we use the aforementioned data to first
suggest a stochastic process that describes the evolution of the temperature. Further, such
temperature modelling phase is accompanied by the numerical technique of Monte Carlo
simulation for derivatives pricing. Finally, we will analyse some weather-sensitive industries
and discuss possible weather hedging strategies they could apply
