Hedging, Pareto Optimality, and Good Deals
19 Pages Posted: 18 Sep 2011 Last revised: 1 Oct 2011
Date Written: September 15, 2011
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: Suggested Citation