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Hedging and Pricing in Imperfect Markets under Non-Convexity

Hirbod Assa and Nikolay Gospodinov ()

No 2014-13, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: This paper proposes a robust 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 for a wide family of risk measures and pricing rules, which are possibly non-convex. 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: C22 E44 G11 G13 (search for similar items in EconPapers)
Date: 2014-08-01
New Economics Papers: this item is included in nep-mac and nep-rmg
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