Hedging with Residual Risk: A BSDE Approach

  • Stefan Ankirchner
  • Peter Imkeller
Conference paper
Part of the Progress in Probability book series (PRPR, volume 63)


When managing energy or weather related risk often only imperfect hedging instruments are available. In the first part we illustrate problems arising with imperfect hedging by studying a toy model. We consider an airline’s problem with covering income risk due to fluctuating kerosine prices by investing into futures written on heating oil with closely correlated price dynamics. In the second part we outline recent results on exponential utility based cross hedging concepts. They highlight in a generalization of the Black- Scholes delta hedge formula to incomplete markets. Its derivation is based on a purely stochastic approach of utility maximization. It interprets stochastic control problems in the BSDE language, and profits from the power of the stochastic calculus of variations.


Financial derivatives hedging minimal variance hedging utilitybased pricing BSDE sub-quadratic growth differentiability stochastic calculus of variations Malliavin calculus 


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Copyright information

© Springer Basel AG 2011

Authors and Affiliations

  • Stefan Ankirchner
    • 1
  • Peter Imkeller
    • 2
  1. 1.Institut für Angewandte MathematikUniversität BonnBonnGermany
  2. 2.Institut für MathematikHumboldt-Universität zu BerlinBerlinGermany

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