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Communications dans une conférence (2016), Seminar Talks in the Winter Term 16/17

How Firms Should Hedge Non-Tradable Risk?

Corporate commitments often exhibit a combined financial exposure to both market prices and idiosyncratic non-tradable components (e.g., volume, load, or business turnover). We design customized contracts to optimally mitigate the risk of joint fluctuations in price and size terms. Hedges are sought out among contingent claims written on price and any quoted index that is statistically dependent on commitment size. Solutions are derived for optimal custom hedges for a variety of tradable claim universes, including price linear, price-index linear, price-index additive non-linear, and fully nonlinear derivatives, under increasingly complex dependence structures. Corresponding pay-off functions are computed either analytically or numerically by using Neumann series expansion of the associated Fredholm system solution. Empirical analysis based on data quoted on the EPEX SPOT power market and on the US gas markets show the performance or our custom hedge solutions in real contexts.

RONCORONI, A. (2016). How Firms Should Hedge Non-Tradable Risk? In: Seminar Talks in the Winter Term 16/17.