Hedging and Pricing in Imperfect Markets Under Non-Convexity
33 Pages Posted: 15 Apr 2013 Last revised: 11 Jun 2014
Date Written: May 30, 2014
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: Projection Hedging, Good Deals, Quantile Regression
JEL Classification: C01, C02, G11, G12, G13
Suggested Citation: Suggested Citation