This paper introduces a financial hedging model for global environment risks. Our approach is based on portfolio insurance under hedging constraints. Investors are assumed to maximize their expected utilities defined on financial and environmental asset values. The optimal investment is determined for quite general utility functions and hedging constraints. In particular, our results suggest how to introduce derivative assets written on the environmental asset.
['André de Palma', 'Jean-Luc Prigent']
Hedging global environment risks: An option based portfolio insurance