Hedging global environment risks: An option based portfolio insurance
AbstractThis 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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Bibliographic InfoPaper provided by THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise in its series THEMA Working Papers with number 2007-09.
Date of creation: 2007
Date of revision:
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utility maximization; hedging; environmental asset; martingale theory;
Find related papers by JEL classification:
- C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
- 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
This paper has been announced in the following NEP Reports:
- NEP-AGR-2007-04-14 (Agricultural Economics)
- NEP-ALL-2007-04-14 (All new papers)
- NEP-BEC-2007-04-14 (Business Economics)
- NEP-ENV-2007-04-14 (Environmental Economics)
- NEP-IAS-2007-04-14 (Insurance Economics)
- NEP-UPT-2007-04-14 (Utility Models & Prospect Theory)
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