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A note on super-hedging for investor-producers

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  • Adrien Nguyen Huu

    (CEREMADE, FiME)

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    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.

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    File URL: http://arxiv.org/pdf/1112.4740
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    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1112.4740.

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    Date of creation: Dec 2011
    Date of revision: Mar 2012
    Handle: RePEc:arx:papers:1112.4740

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    1. Guasoni, Paolo & Lépinette-Denis, Emmanuel & Rásonyi, Miklós, 2012. "The fundamental theorem of asset pricing under transaction costs," Economics Papers from University Paris Dauphine, Paris Dauphine University 123456789/9300, Paris Dauphine University.
    2. Lépinette-Denis, Emmanuel & Kabanov, Yuri, 2012. "Consistent Price Systems and Arbitrage Opportunities of the Second Kind in Models with Transaction Costs," Economics Papers from University Paris Dauphine, Paris Dauphine University 123456789/4652, Paris Dauphine University.
    3. Julien Grépat & Yuri Kabanov, 2012. "Small transaction costs, absence of arbitrage and consistent price systems," Finance and Stochastics, Springer, Springer, vol. 16(3), pages 357-368, July.
    4. U. �etin & R. Jarrow & P. Protter & M. Warachka, 2006. "Pricing Options in an Extended Black Scholes Economy with Illiquidity: Theory and Empirical Evidence," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 19(2), pages 493-529.
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