Working Paper

Hedging and Pricing in Imperfect Markets under Non-Convexity


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;

JEL Classification: C22; E44; G11; G13;

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Bibliographic Information

Provider: Federal Reserve Bank of Atlanta

Part of Series: FRB Atlanta Working Paper

Publication Date: 2014-08-01

Number: 2014-13