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A note on super-hedging for investor-producers

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  • Adrien Nguyen Huu

    (CEREMADE, FiME)

Abstract

We study the situation of an agent who can trade on a financial market and can also transform some assets into others by means of a production system, in order to price and hedge derivatives on produced goods. This framework is motivated by the case of an electricity producer who wants to hedge a position on the electricity spot price and can trade commodities which are inputs for his system. This extends the essential results of Bouchard & Nguyen Huu (2011) to continuous time markets. We introduce the generic concept of conditional sure profit along the idea of the no sure profit condition of R\`asonyi (2009). The condition allows one to provide a closedness property for the set of super-hedgeable claims in a very general financial setting. Using standard separation arguments, we then deduce a dual characterization of the latter and provide an application to power futures pricing.

Suggested Citation

  • Adrien Nguyen Huu, 2011. "A note on super-hedging for investor-producers," Papers 1112.4740, arXiv.org, revised Mar 2012.
    • Handle: RePEc:arx:papers:1112.4740
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    References listed on IDEAS

    as
    1. Bruno Bouchard & Adrien Nguyen Huu, 2013. "No marginal arbitrage of the second kind for high production regimes in discrete time production-investment models with proportional transaction costs," Post-Print hal-00487030, HAL.
    2. Schachermayer, W., 1992. "A Hilbert space proof of the fundamental theorem of asset pricing in finite discrete time," Insurance: Mathematics and Economics, Elsevier, vol. 11(4), pages 249-257, December.
    3. Emmanuel Denis & Yuri Kabanov, 2012. "Consistent price systems and arbitrage opportunities of the second kind in models with transaction costs," Finance and Stochastics, Springer, vol. 16(1), pages 135-154, January.
    4. Luciano Campi & Walter Schachermayer, 2006. "A super-replication theorem in Kabanov’s model of transaction costs," Finance and Stochastics, Springer, vol. 10(4), pages 579-596, December.
    5. U. Çetin & R. Jarrow & P. Protter & M. Warachka, 2008. "Pricing Options in an Extended Black Scholes Economy with Illiquidity: Theory and Empirical Evidence," World Scientific Book Chapters, in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 9, pages 185-221, World Scientific Publishing Co. Pte. Ltd..
    6. René Aïd & Luciano Campi & Adrien Nguyen Huu & Nizar Touzi, 2009. "A Structural Risk-Neutral Model Of Electricity Prices," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 12(07), pages 925-947.
    7. Paolo Guasoni & Emmanuel Lépinette & Miklós Rásonyi, 2012. "The fundamental theorem of asset pricing under transaction costs," Finance and Stochastics, Springer, vol. 16(4), pages 741-777, October.
    8. repec:dau:papers:123456789/5455 is not listed on IDEAS
    9. Walter Schachermayer, 2004. "The Fundamental Theorem of Asset Pricing under Proportional Transaction Costs in Finite Discrete Time," Mathematical Finance, Wiley Blackwell, vol. 14(1), pages 19-48, January.
    10. Julien Grépat & Yuri Kabanov, 2012. "Small transaction costs, absence of arbitrage and consistent price systems," Finance and Stochastics, Springer, vol. 16(3), pages 357-368, July.
    11. repec:dau:papers:123456789/4652 is not listed on IDEAS
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