Hedging and Pricing in Imperfect Markets under Non-Convexity
Hirbod Assa () and
Nikolay Gospodinov ()
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Hirbod Assa: University of Liverpool, Postal: Institute for Financial and Actuarial Mathematics, University of Liverpool, Mathematical Sciences Building, Peach Street, Liverpool L69 7ZL, United Kingdom
No 2014-13, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta
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)
New Economics Papers: this item is included in nep-mac and nep-rmg
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