Related papers: Variance optimal hedging with application to Elect…
We study robust notions of good-deal hedging and valuation under combined uncertainty about the drifts and volatilities of asset prices. Good-deal bounds are determined by a subset of risk-neutral pricing measures such that not only…
Efficiently integrating renewable resources into electricity markets is vital for addressing the challenges of matching real-time supply and demand while reducing the significant energy wastage resulting from curtailments. To address this…
Recent studies show that the fast growing expansion of wind power generation may lead to extremely high levels of price volatility in wholesale electricity markets. Storage technologies, regardless of their specific forms e.g. pump-storage…
In a market with one safe and one risky asset, an investor with a long horizon, constant investment opportunities, and constant relative risk aversion trades with small proportional transaction costs. We derive explicit formulas for the…
We propose a general approximation method for determining optimal trading strategies in markets with proportional transaction costs, with a polynomial approximation of the residual value function. The method is exemplified by several…
Value adjustment of uncollateralized trades is determined within a risk-neutral pricing framework. When hedging such trades, investors cannot freely trade protection on their own name, thus facing an incomplete market. This fact is…
We present a new approach for studying the problem of optimal hedging of a European option in a finite and complete discrete-time market model. We consider partial hedging strategies that maximize the success probability or minimize the…
We study a competitive electricity market equilibrium with two trading stages, day-ahead and real-time. The welfare of each market agent is exposed to uncertainty (here from renewable energy production), while agent information on the…
Increased penetration of wind energy will make electricity market prices more volatile. As a result, market participants will bear increased financial risks, which impact investment decisions and in turn, makes it harder to achieve…
We consider two market designs for a network of prosumers, trading energy: (i) a centralized design which acts as a benchmark, and (ii) a peer-to-peer market design. High renewable energy penetration requires that the energy market design…
The price of electricity is far more volatile than that of other commodities normally noted for extreme volatility. The possibility of extreme price movements increases the risk of trading in electricity markets. However, underlying the…
We study hedging and pricing of unattainable contingent claims in a non-Markovian regime-switching financial model. Our financial market consists of a bank account and a risky asset whose dynamics are driven by a Brownian motion and a…
A common assumption in financial engineering is that the market price for any derivative coincides with an objectively defined risk-neutral price - a plausible assumption only if traders collectively possess objective knowledge about the…
In most real scenarios the construction of a risk-neutral portfolio must be performed in discrete time and with transaction costs. Two human imposed constraints are the risk-aversion and the profit maximization, which together define a…
We consider portfolio selection under nonparametric $\alpha$-maxmin ambiguity in the neighbourhood of a reference distribution. We show strict concavity of the portfolio problem under ambiguity aversion. Implied demand functions are…
Quadratic hedging of option payoffs generates the variance optimal martingale measure. When an option features an exercise policy and its cash flows are hedged according to this approach, it may be tempting to optimize such a policy under…
The implementation of electricity markets based on locational marginal pricing in a multi-settlement process has allowed wholesale competition, with pricing mechanisms that incentivize the optimal allocation of generation, transmission, and…
This work takes up the challenges of utility maximization problem when the market is indivisible and the transaction costs are included. First there is a so-called solvency region given by the minimum margin requirement in the problem…
All the financial practitioners are working in incomplete markets full of unhedgeable risk-factors. Making the situation worse, they are only equipped with the imperfect information on the relevant processes. In addition to the market risk,…
The classical discrete time model of proportional transaction costs relies on the assumption that a feasible portfolio process has solvent increments at each step. We extend this setting in two directions, allowing for convex transaction…