Hedging and Pricing in Imperfect Markets Under Non-Convexity

33 Pages Posted: 15 Apr 2013 Last revised: 11 Jun 2014

See all articles by Hirbod Assa

Hirbod Assa

University of Liverpool

Nikolay Gospodinov

Federal Reserve Bank of Atlanta

Multiple version iconThere are 2 versions of this paper

Date Written: May 30, 2014

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: Projection Hedging, Good Deals, Quantile Regression

JEL Classification: C01, C02, G11, G12, G13

Suggested Citation

Assa, Hirbod and Gospodinov, Nikolay, Hedging and Pricing in Imperfect Markets Under Non-Convexity (May 30, 2014). Available at SSRN: https://ssrn.com/abstract=2250444 or http://dx.doi.org/10.2139/ssrn.2250444

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/

Nikolay Gospodinov

Federal Reserve Bank of Atlanta ( email )

Atlanta, GA 30309
United States

HOME PAGE: https://www.frbatlanta.org/research/economists/gospodinov-nikolay.aspx?panel=1

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