Federal Reserve Bank of Atlanta
FRB Atlanta Working Paper
Hedging and Pricing in Imperfect Markets under Non-Convexity
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.
Cite this item
Hirbod Assa & Nikolay Gospodinov, Hedging and Pricing in Imperfect Markets under Non-Convexity, Federal Reserve Bank of Atlanta, FRB Atlanta Working Paper 2014-13, 01 Aug 2014.
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
Keywords: imperfect markets; risk measures; hedging; pricing rule; quantile regression
This item with handle RePEc:fip:fedawp:2014-13
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