Geodesic
Entropic conditions and hedging
ESAIM: Probability and Statistics, Tome 11 (2007), pp. 197-216

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In many markets, especially in energy markets, electricity markets for instance, the detention of the physical asset is quite difficult. This is also the case for crude oil as treated by Davis (2000). So one can identify a good proxy which is an asset (financial or physical) (one)whose the spot price is significantly correlated with the spot price of the underlying (e.g. electicity or crude oil). Generally, the market could become incomplete. We explicit exact hedging strategies for exponential utilities when the risk premium is bounded. Our result is based upon backward stochastic differential equation (BSDE) and a good choice of admissible strategies which allows us to solve our hedging problem.

DOI : 10.1051/ps:2007015
Classification : 90A09, 34A12
Keywords: stochastic optimization, martingale representation theorem 
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     author = {Njoh, Samuel},
     title = {Entropic conditions and hedging},
     journal = {ESAIM: Probability and Statistics},
     pages = {197--216},
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Njoh, Samuel. Entropic conditions and hedging. ESAIM: Probability and Statistics, Tome 11 (2007), pp. 197-216. doi: 10.1051/ps:2007015

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