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Hedging global environment risks: An option based portfolio insurance

Author

Listed:
  • André de Palma

    () (University of Cergy-Pontoise (THEMA),and Ecole Polytechnique)

  • Jean-Luc Prigent

    () (University of Cergy-Pontoise (THEMA))

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.

Suggested Citation

  • André de Palma & Jean-Luc Prigent, 2007. "Hedging global environment risks: An option based portfolio insurance," THEMA Working Papers 2007-09, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  • Handle: RePEc:ema:worpap:2007-09
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    File URL: http://thema.u-cergy.fr/IMG/documents/2007-09.pdf
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    References listed on IDEAS

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    Cited by:

    1. André De Palma & Luc E. Leruth & Guillaume Prunier, 2012. "Towards a Principal-Agent Based Typology of Risks in Public-Private Partnerships," Reflets et perspectives de la vie économique, De Boeck Université, vol. 0(2), pages 57-73.

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    More about this item

    Keywords

    utility maximization; hedging; environmental asset; martingale theory;
    All these keywords.

    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

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