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Hedging global environment risks: An option based portfolio insurance

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Author Info
André de Palma () (University of Cergy-Pontoise (THEMA),and Ecole Polytechnique)
Jean-Luc Prigent () (University of Cergy-Pontoise (THEMA))

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Abstract

This paper introduces a financial hedging model for global environment risks. Our approach is based on portfolio insurance under hedging constraints. Investors are assumed to maximize their expected utilities defined on financial and environmental asset values. The optimal investment is determined for quite general utility functions and hedging constraints. In particular, our results suggest how to introduce derivative assets written on the environmental asset.

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Publisher Info
Paper provided by THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise in its series THEMA Working Papers with number 2007-09.

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Date of creation: 2007
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Handle: RePEc:ema:worpap:2007-09

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Related research
Keywords: utility maximization; hedging; environmental asset; martingale theory;

Find related papers by JEL classification:
C6 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Cox, John C. & Huang, Chi-fu, 1989. "Optimal consumption and portfolio policies when asset prices follow a diffusion process," Journal of Economic Theory, Elsevier, vol. 49(1), pages 33-83, October. [Downloadable!] (restricted)
  2. Vasicek, Oldrich, 1977. "An equilibrium characterization of the term structure," Journal of Financial Economics, Elsevier, vol. 5(2), pages 177-188, November. [Downloadable!] (restricted)
  3. Grossman, Sanford J & Vila, Jean-Luc, 1989. "Portfolio Insurance in Complete Markets: A Note," Journal of Business, University of Chicago Press, vol. 62(4), pages 473-76, October. [Downloadable!] (restricted)
    Other versions:
  4. Brennan, M.J. & Solanki, R., 1981. "Optimal Portfolio Insurance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 16(03), pages 279-300, September. [Downloadable!]
  5. Black, Fischer & Perold, AndreF., 1992. "Theory of constant proportion portfolio insurance," Journal of Economic Dynamics and Control, Elsevier, vol. 16(3-4), pages 403-426. [Downloadable!] (restricted)
  6. Bjarne Astrup Jensen & Carsten Sørensen, 2001. "Paying for Minimum Interest Rate Guarantees: Who Should Compensate Who?," European Financial Management, Blackwell Publishing Ltd, vol. 7(2), pages 183-211. [Downloadable!] (restricted)
  7. Safirova, Elena A. & Houde, Sébastien & Lipman, D. Abram & Harrington, Winston & Bagliano, Andrew D., 2006. "Congestion Pricing: Long-Term Economic and Land-Use Effects," Discussion Papers dp-06-37, Resources For the Future. [Downloadable!]
  8. Grossman, Sanford J & Zhou, Zhongquan, 1996. " Equilibrium Analysis of Portfolio Insurance," Journal of Finance, American Finance Association, vol. 51(4), pages 1379-1403, September. [Downloadable!] (restricted)
  9. Leland, Hayne E, 1980. " Who Should Buy Portfolio Insurance?," Journal of Finance, American Finance Association, vol. 35(2), pages 581-94, May. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. André De Palma & Luc Leruth & Guillaume Prunier, 2009. "Towards a Principal-Agent Based Typology of Risks in Public-Private Partnerships," Working Papers hal-00419234_v1, HAL. [Downloadable!]
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This page was last updated on 2009-11-19.

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