132 Valuation and Risk Management of Weather Derivatives: The Application of CME Rainfall Index Binary Contracts In order to justify the rationality of the seasonal characteristic assumption in transition probability, we divide 59 years of data into three groups with each consisting of two decades (except the last group which consists of 19 years of data), and by taking p00 as an example, we calculate the historical daily transition probability in a year (365 days). After comparing the annual trends in Figure 2, we think the seasonal assumption of transition probability is reasonable. Besides, we divide the data into six groups with each consisting of a decade (except the last group which consists of 9 years of data), and calculate the mean and median magnitude of monthly precipitation for each group. According to the trend observed in Figure 2, it is reasonable to make the seasonal assumption of the magnitude parameters. Figure 2 The Test of the Seasonal Characteristic Assumptions
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