Archives

1
Jul

Utility Indifference Valuation for Non-Smooth Payoffs with an Application to Power Derivatives

RR-FiME-13-03 Giuseppe Benedetti, Luciano Campi We consider the problem of exponential utility indifference valuation under the simplified framework where traded and nontraded assets are uncorrelated but where the claim to be priced possibly depends on both. Traded asset prices follow a multivariate Black and Scholes model, while nontraded asset prices evolve as generalized Ornstein-Uhlenbeck processes. We provide a BSDE characterization of the utility indifference price (UIP) for a large class Read more [...]

1
May

Real option game with a random regulator: the value of being preferred

RR-FiME-13-02 Adrien Nguyen Huu We attempt to formalize a randomization procedure undertaken in pre-emptive real option games without simultaneous investment. This allows to propose a unified treatment of both real option games with and without simultaneous investment. This is done by introducing a random arbitrator with different parametrization. We then extend the study to an unfair arbitrator. This leads to competitive advantages in various asymmetrical situations. Relying on the results of Read more [...]

1
Jan

Banking and Backloading Emission Permits

RR-FIME-13-01 Corinne CHATON, Anna CRETI, Benoît PELUCHON In this article we focus on carbon price dynamics, more specfically the impact of a policy envisaged by the European Commission to increase the CO2 price. This policy consists of removing a share of the allowances al- located for a period in order to reallocate some or all of them during the following period. To analyze the impact of this backloading we determine the CO2 market equilibrium with and without the policy, considering not only Read more [...]

1
Oct

A Probabilistic Numerical Method for Optimal Multiple Switching Problem and Application to Investments in Electricity Generation

RR-FiME-12-07 René Aïd, Luciano Campi, Nicolas Langrené, Huyên Pham In this paper, we present a probabilistic numerical algorithm combining dynamic programming, Monte Carlo simulations and local basis regressions to solve non-stationary optimal multiple switching problems in infinite horizon. We provide the rate of convergence of the method in terms of the time step used to discretize the problem, of the size of the local hypercubes involved in the regressions, and of the truncating time horizon. Read more [...]

1
Aug

Numerical Methods for the Quadratic Hedging Problem in Markov Models with jumps

RR-FiME-12-04 Carmine De Franco, Peter Tankov, Xavier Warin We develop algorithms for the numerical computation of the quadratic hedging strategy in incomplete markets modeled by pure jump Markov process. Using the Hamilton-Jacobi-Bellman approach, the value function of the quadratic hedging problem can be related to a triangular system of parabolic partial integro-differential equations (PIDE), which can be shown to possess unique smooth solutions in our setting. The first equation is non-linear, Read more [...]

1
Jul

A review of optimal decision rule for investment in electricity generation

R. Aïd This paper provides an introduction to optimal investment rules in electricity generation. It attempts to bring together methods commonly used in practice to assess electricity generation investments as well as the sophisticated tools developed by mathematical economists in the last thirty years. It begins with a description of the fundamentals of the problem (economic context of the energy and electricity sectors, the technical constraints and cost structures of generation technologies). Read more [...]

1
Jun

A Principal-Agent Problem for Emissions' Reduction

RR-FiME-12-06 Giuseppe Benedetti We analyze a principal-agent problem between the state (principal) and a firm (agent) which produces carbon emissions. In particular, the aim of the state is to motivate the firm to reduce those emissions as much as possible by structuring an appropriate incentive policy. We allow for two different kinds of incentives: a \negative" one, typically represented by a fee to pay at a given time T if emissions are too high; and a \positive" one, in the form of continuous-time Read more [...]

1
Jun

Variance Optimal hedging for continuous time additive processes and applications

S. Goutte, N. Oudjane, F. Russo à paraître dans Journal of Computational Finance Juin 2012

1
Jun

No arbitrage of the second kind for high production regime in discrete time production-investment models with proportional transaction costs

B. Bouchard, A. Nguyen Huu à paraître dans Mathematical Finance Juin 2012

1
Jun

Multivariate utility maximization with proportional transaction costs and random endowment

G. Benedetti, L. Campi à paraître dans SIAM Journal on Optimization and Control Juin 2012  

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