Hedging, Pareto Optimality, and Good Deals

19 Pages Posted: 18 Sep 2011 Last revised: 1 Oct 2011

See all articles by Hirbod Assa

Hirbod Assa

University of Liverpool

Keivan Mallahi Karai

Jacobs University

Date Written: September 15, 2011

Abstract

In this paper we will describe a framework that allows us to connect the problem of hedging a portfolio in finance to the existence of Pareto optimal allocations in economics. We will show the solvability of both problems is equivalent to the No Good Deals assumption. We will then analyze the case of co-monotone additive monetary utility functions and risk measures.

Keywords: Hedging, Pareto Optimality, Good Deal

JEL Classification: C32, C02, G00

Suggested Citation

Assa, Hirbod and Mallahi Karai, Keivan, Hedging, Pareto Optimality, and Good Deals (September 15, 2011). Available at SSRN: https://ssrn.com/abstract=1928268 or http://dx.doi.org/10.2139/ssrn.1928268

Hirbod Assa (Contact Author)

University of Liverpool ( email )

Institute for Financial and Actuarial Mathematics,
Liverpool, L18 8BF
United Kingdom
447522173132 (Phone)

HOME PAGE: http://sites.google.com/site/assahirbod/

Keivan Mallahi Karai

Jacobs University ( email )

Campus Ring 1
Bremen, 28725
Germany
0049 421 2003513 (Phone)

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