Variance–optimal hedging for discrete-time processes with independent increments: application to electricity markets

Stéphane Goutte and Nadia Oudjane and Francesco Russo

Journal of Computational Finance

Abstract: ABSTRACT We consider the discretized version of a (continuous-time) two-factor model introduced by Benth and coauthors for the electricity markets. For this model, the underlying is the exponent of a sum of independent random variables.We provide and test an algorithm based on the celebrated Föllmer Schweizer decomposition for solving the mean-variance hedging problem. In particular, we establish that decomposition explicitly, for a large class of vanilla contingent claims. Particular attention is dedicated to the choice of rebalancing dates and its impact on the hedging error, regarding the payoff regularity and the nonstationarity of the log-price process.

References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.risk.net/journal-of-computational-fina ... -electricity-markets (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rsk:journ0:2309291

Access Statistics for this article

More articles in Journal of Computational Finance from Journal of Computational Finance
Bibliographic data for series maintained by Thomas Paine ().