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A note on super-hedging for investor-producers

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  • Adrien Nguyen Huu

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    (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS : UMR7534 - Université Paris IX - Paris Dauphine, FiME - Laboratoire de Finance des Marchés d'Energie - Université Paris IX - Paris Dauphine)

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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 Ràsonyi (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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    Bibliographic Info

    Paper provided by HAL in its series Working Papers with number hal-00653982.

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    Date of creation: 27 Feb 2012
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    Handle: RePEc:hal:wpaper:hal-00653982

    Note: View the original document on HAL open archive server: http://hal.archives-ouvertes.fr/hal-00653982
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    Related research

    Keywords: markets with proportional transaction costs; non-linear returns; arbitrage pricing theory; super-replication theorem; electricity markets; energy derivatives;

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    1. Paolo Guasoni & Emmanuel Lépinette & Miklós Rásonyi, 2012. "The fundamental theorem of asset pricing under transaction costs," Finance and Stochastics, Springer, vol. 16(4), pages 741-777, October.
    2. Julien Grépat & Yuri Kabanov, 2012. "Small transaction costs, absence of arbitrage and consistent price systems," Finance and Stochastics, Springer, vol. 16(3), pages 357-368, July.
    3. Emmanuel Denis & Yuri Kabanov, 2012. "Consistent price systems and arbitrage opportunities of the second kind in models with transaction costs," Finance and Stochastics, Springer, vol. 16(1), pages 135-154, January.
    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, vol. 19(2), pages 493-529.
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