A Robust Approach to Hedging and Pricing in Imperfect Markets
Hirbod Assa () and
Nikolay Gospodinov ()
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Hirbod Assa: Institute for Financial and Actuarial Mathematics, University of Liverpool, Mathematical Sciences Building, Peach Street, Liverpool L69 7ZL, UK
Risks, 2017, vol. 5, issue 3, 1-20
This paper proposes a model-free approach to hedging and pricing in the presence of market imperfections such as market incompleteness and frictions. The generality of this framework allows us to conduct an in-depth theoretical analysis of hedging strategies with a wide family of risk measures and pricing rules, and study the conditions under which the hedging problem admits a solution and pricing is possible. The practical implications of our proposed theoretical approach are illustrated with an application on hedging economic risk.
Keywords: imperfect markets; risk measures; hedging; pricing rule; quantile regression (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 M2 M4 K2 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:gam:jrisks:v:5:y:2017:i:3:p:36-:d:105112
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