Related papers: Variance optimal hedging with application to Elect…
Hedging exotic options in presence of market frictions is an important risk management task. Deep hedging can solve such hedging problems by training neural network policies in realistic simulated markets. Training these neural networks may…
We consider a financial model with permanent price impact. Continuous time trading dynamics are derived as the limit of discrete rebalancing policies. We then study the problem of super-hedging a European option. Our main result is the…
This article clarifies the relationship between pricing kernel monotonicity and the existence of opportunities for stochastic arbitrage in a complete and frictionless market of derivative securities written on a market portfolio. The…
European energy markets are decentralized and entail balance responsibility of each market player. This stresses the importance of imbalance management of renewable energy sources (RES), as the imbalance payments can strongly reduce their…
This paper develops a machine learning-driven portfolio optimization framework for virtual bidding in electricity markets considering both risk constraint and price sensitivity. The algorithmic trading strategy is developed from the…
For a large class of vanilla contingent claims, we establish an explicit F\"ollmer-Schweizer decomposition when the underlying is an exponential of an additive process. This allows to provide an efficient algorithm for solving the mean…
The mean-variance hedging (MVH) problem is studied in a partially observable market where the drift processes can only be inferred through the observation of asset or index processes. Although most of the literatures treat the MVH problem…
Forecasting electricity prices is a challenging task and an active area of research since the 1990s and the deregulation of the traditionally monopolistic and government-controlled power sectors. Although it aims at predicting both spot and…
We consider hedging of a contingent claim by a 'semi-static' strategy composed of a dynamic position in one asset and static (buy-and-hold) positions in other assets. We give general representations of the optimal strategy and the hedging…
Hedging in the presence of transaction costs leads to complex optimization problems. These problems typically lack closed-form solutions, and their implementation relies on numerical methods that provide hedging strategies for specific…
We present a method for finding optimal hedging policies for arbitrary initial portfolios and market states. We develop a novel actor-critic algorithm for solving general risk-averse stochastic control problems and use it to learn hedging…
It is shown that delta hedging provides the optimal trading strategy in terms of minimal required initial capital to replicate a given terminal payoff in a continuous-time Markovian context. This holds true in market models where no…
We consider the scenario where $N$ utilities strategically bid for electricity in the day-ahead market and balance the mismatch between the committed supply and actual demand in the real-time market, with uncertainty in demand and local…
This paper studies the optimal investment problem with random endowment in an inventory-based price impact model with competitive market makers. Our goal is to analyze how price impact affects optimal policies, as well as both pricing rules…
We propose a new forward electricity market framework that admits heterogeneous market participants with second-order cone strategy sets, who accurately express the nonlinearities in their costs and constraints through conic bids, and a…
We consider the pricing and hedging of exotic options in a model-independent set-up using \emph{shortfall risk and quantiles}. We assume that the marginal distributions at certain times are given. This is tantamount to calibrating the model…
It is well documented that a model for the underlying asset price process that seeks to capture the behaviour of the market prices of vanilla options needs to exhibit both diffusion and jump features. In this paper we assume that the asset…
Over the last few decades, electricity markets around the world have adopted multi-settlement structures, allowing for balancing of supply and demand as more accurate forecast information becomes available. Given increasing uncertainty due…
Stability of the utility maximization problem with random endowment and indifference prices is studied for a sequence of financial markets in an incomplete Brownian setting. Our novelty lies in the nonequivalence of markets, in which the…
Electric power systems are undergoing a major transformation as they integrate intermittent renewable energy sources, and batteries to smooth out variations in renewable energy production. As privately-owned batteries grow from their role…