Related papers: A Utility Based Approach to Energy Hedging
We consider a continuous-time market with proportional transaction costs. Under appropriate assumptions we prove the existence of optimal strategies for investors who maximize their worst-case utility over a class of possible models. We…
Flexibility options, such as demand response, energy storage and interconnection, have the potential to reduce variation in electricity prices between different future scenarios, therefore reducing investment risk. Moreover, investment in…
Our goal is to analyze the system of Hamilton-Jacobi-Bellman equations arising in derivative securities pricing models. The European style of an option price is constructed as a difference of the certainty equivalents to the value functions…
We consider the robust exponential utility maximization problem in discrete time: An investor maximizes the worst case expected exponential utility with respect to a family of nondominated probabilistic models of her endowment by…
We propose a novel approach to infer investors' risk preferences from their portfolio choices, and then use the implied risk preferences to measure the efficiency of investment portfolios. We analyze a dataset spanning a period of six…
Liberalized electricity markets often include resource adequacy mechanisms that require consumers to contract with generation resources well in advance of real-time operations. While administratively defined mechanisms have most commonly…
In the large financial market, which is described by a model with countably many traded assets, we formulate the problem of the expected utility maximization. Assuming that the preferences of an economic agent are modeled with a stochastic…
In power markets, Green Power Purchase Agreements have become an important contractual tool of the energy transition from fossil fuels to renewable sources such as wind or solar radiation. Trading Green PPAs exposes agents to price risks…
This paper considers the optimal portfolio selection problem in a dynamic multi-period stochastic framework with regime switching. The risk preferences are of exponential (CARA) type with an absolute coefficient of risk aversion which…
This paper solves a utility maximization problem under utility-based shortfall risk constraint, by proposing an approach using Lagrange multiplier and convex duality. Under mild conditions on the asymptotic elasticity of the utility…
Equity premium, the surplus returns of stocks over bonds, has been an enduring puzzle. While numerous prior works approach the problem assuming the utility of money is invariant across contexts, our approach implies that in efficient…
We consider an optimal investment-consumption problem for a utility-maximizing investor who has access to assets with different liquidity and whose consumption rate as well as terminal wealth are subject to lower-bound constraints. Assuming…
Energy storage promotes the integration of renewables by operating with charge and discharge policies that balance an intermittent power supply. A key challenge in this emerging sector is how to optimize the operation of storage assets…
This paper studies the problem of maximizing the expected utility of terminal wealth for a financial agent with an unbounded random endowment, and with a utility function which supports both positive and negative wealth. We prove the…
Gambles are random variables that model possible changes in monetary wealth. Classic decision theory transforms money into utility through a utility function and defines the value of a gamble as the expectation value of utility changes.…
If a financial asset's price movement impacts a firm's product demand, the firm can respond to the impact by adjusting its operational decisions. For example, in the automotive industry, car makers decrease the selling prices of…
This review presents the set of electricity price models proposed in the literature since the opening of power markets. We focus on price models applied to financial pricing and risk management. We classify these models according to their…
This paper shows how reinforcement learning can be used to derive optimal hedging strategies for derivatives when there are transaction costs. The paper illustrates the approach by showing the difference between using delta hedging and…
We study a robust utility maximization problem in the case of an incomplete market and logarithmic utility with general stochastic constraints, not necessarily convex. Our problem is equivalent to maximizing of nonlinear expected…
In this short paper we introduce a new class of performance measures based on certainty equivalents defined via scaled utility functions. We analyse their properties, show that the corresponding portfolio optimization problem is well-posed…