A note on super-hedging for investor-producers

DOI10.1007/S11579-012-0080-7zbMATH Open1270.91105arXiv1112.4740OpenAlexW2111868482MaRDI QIDQ2392019FDOQ2392019

Adrien Nguyen Huu

Publication date: 6 August 2013

Published in: Mathematics and Financial Economics (Search for Journal in Brave)

Abstract: We study the situation of an agent who can trade on a financial market and can also transform some assets into others by means of a production system, in order to price and hedge derivatives on produced goods. This framework is motivated by the case of an electricity producer who wants to hedge a position on the electricity spot price and can trade commodities which are inputs for his system. This extends the essential results of Bouchard & Nguyen Huu (2011) to continuous time markets. We introduce the generic concept of conditional sure profit along the idea of the no sure profit condition of R`asonyi (2009). The condition allows one to provide a closedness property for the set of super-hedgeable claims in a very general financial setting. Using standard separation arguments, we then deduce a dual characterization of the latter and provide an application to power futures pricing.

Full work available at URL: https://arxiv.org/abs/1112.4740

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zbMATH Keywords

electricity marketsnonlinear returnsarbitrage pricing theoryenergy derivativesmarkets with proportional transaction costssuper replication theorem

Mathematics Subject Classification ID

Martingales with discrete parameter (60G42) Applications of stochastic analysis (to PDEs, etc.) (60H30) Financial applications of other theories (91G80)

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• NO MARGINAL ARBITRAGE OF THE SECOND KIND FOR HIGH PRODUCTION REGIMES IN DISCRETE TIME PRODUCTION–INVESTMENT MODELS WITH PROPORTIONAL TRANSACTION COSTS

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