We investigate the pricing of temperature derivatives under weather forecasts modeled by enlarged filtrations. We also treat option pricing and optimal portfolio selection in temperature markets with future information. We finally prove an anticipative sufficient stochastic minimum principle and...

We propose a pure jump precipitation model embedded in an enlarged filtration framework accounting for weather forecasts. Under different anticipative approaches, we define precipitation swap/futures prices and also introduce the notion of an ‘information premium'. In contrast to other models...

We derive utility maximizing portfolios and consumption rates in electricity futures markets under anticipative information modeled by enlarged filtrations. The emerging optimization exercises are solved by point-wise maximization and a sufficient stochastic maximum principle. We provide...

The two main issues for managing wrong way risk (WWR) for the credit valuation adjustment (CVA, i.e. WW-CVA) are calibration and hedging. Hence we start from a novel model-free worst-case approach based on static hedging of counterparty exposure with liquid options. We say "start from" because...

We analyse cointegration in commodity markets, and propose a parametric class of pricing measures which preserves cointegration for forward prices with fixed time to maturity. We present explicit expressions for the term structure of volatility and correlation in the context of our spot price...

In this paper, we derive optimal hedging strategies for options in electricity futures markets. Optimality is measured in terms of minimal variance and the associated minimal variance hedging portfolios are obtained by a stochastic maximum principle. Our explicit results are particularly useful...

We derive risk-neutral option price formulas for plain-vanilla and exotic electricity futures derivatives on the basis of diverse arithmetic multi-factor Ornstein-Uhlenbeck spot price models admitting seasonality. In these setups, we take additional forward-looking knowledge on future price...

Regulations impose idiosyncratic capital and funding costs for holding derivatives. Capital requirements are costly because derivatives desks are risky businesses; funding is costly in part because regulations increase the minimum funding tenor. Idiosyncratic costs mean no single measure makes...

We establish general theory of foreign exchange derivatives (FXD), for multidimensional, possibly incomplete, Itô SDE market/econometric models. The established theory is consistent with the one of foreign exchange rates (FXR) introduced by the author in a previous note. A very simple example...

In this paper, we present a new precipitation model based on a multi-factor Ornstein-Uhlenbeck approach of pure-jump type. In this setup, we derive a representation for the related precipitation swap price process and infer its risk-neutral time dynamics. We further deduce a pricing formula for...