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A power plant valuation under an asymmetric risk criterion taking into account maintenance costs

Author

Listed:
  • Clémence Alasseur

    (FiME Lab - Laboratoire de Finance des Marchés d'Energie - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres - CREST - EDF R&D - EDF R&D - EDF - EDF, EDF R&D - EDF R&D - EDF - EDF)

  • Emmanuel Gobet

    (CMAP - Centre de Mathématiques Appliquées - Ecole Polytechnique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique)

  • Isaque Pimentel

    (CMAP - Centre de Mathématiques Appliquées - Ecole Polytechnique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique, EDF R&D - EDF R&D - EDF - EDF)

  • Xavier Warin

    (EDF R&D - EDF R&D - EDF - EDF)

Abstract

Power producers are interested in valuing their power plant production. By trading into forward contracts, we propose to reduce the contingency of the associated income considering the fixed costs and using an asymmetric risk criterion. In an asymptotic framework, we provide an optimal hedging strategy through a solution of a nonlinear partial differential equation. As a numerical experiment, we analyze the impact of the fixed costs structure on the hedging policy and the value of the assets.

Suggested Citation

  • Clémence Alasseur & Emmanuel Gobet & Isaque Pimentel & Xavier Warin, 2019. "A power plant valuation under an asymmetric risk criterion taking into account maintenance costs," Working Papers hal-02077740, HAL.
    • Handle: RePEc:hal:wpaper:hal-02077740
    Note: View the original document on HAL open archive server: https://hal.science/hal-02077740
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    References listed on IDEAS

    as
    1. Emmanuel Gobet & Isaque Pimentel & Xavier Warin, 2018. "Option valuation and hedging using asymmetric risk function: asymptotic optimality through fully nonlinear Partial Differential Equations," Working Papers hal-01761234, HAL.
    2. M. Avellaneda & A. Levy & A. ParAS, 1995. "Pricing and hedging derivative securities in markets with uncertain volatilities," Applied Mathematical Finance, Taylor & Francis Journals, vol. 2(2), pages 73-88.
    3. Gunter H. Meyer, 2006. "The Black Scholes Barenblatt Equation For Options With Uncertain Volatility And Its Application To Static Hedging," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 9(05), pages 673-703.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Hedging; asymmetric risk; fully nonlinear PDE; cost management; power plant;
    All these keywords.

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