Advanced Search
MyIDEAS: Login to save this article or follow this journal

Partial Hedging in Financial Markets with a Large Agent


Author Info

  • Jungmin Choi
  • Mattias Jonsson
Registered author(s):


    We investigate the partial hedging problem in financial markets with a large agent. An agent is said to be large if his/her trades influence the equilibrium price. We develop a stochastic differential equation (SDE) with a single large agent parameter to model such a market. We focus on minimizing the expected value of the size of the shortfall in the large agent model. A Bellman-type partial differential equation (PDE) is derived, and the Legendre transform is used to consider the dual shortfall function. An asymptotic analysis leads us to conclude that the shortfall function (expected loss) increases when there is a large agent, which means that one would need more capital to hedge away risk in the market with a large agent. This asymptotic analysis is confirmed by performing Monte Carlo simulations.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL:
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Mathematical Finance.

    Volume (Year): 16 (2009)
    Issue (Month): 4 ()
    Pages: 331-346

    as in new window
    Handle: RePEc:taf:apmtfi:v:16:y:2009:i:4:p:331-346

    Contact details of provider:
    Web page:

    Order Information:

    Related research

    Keywords: Partial hedging; large agent; Bellman PDE;


    No references listed on IDEAS
    You can help add them by filling out this form.



    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.


    Access and download statistics


    When requesting a correction, please mention this item's handle: RePEc:taf:apmtfi:v:16:y:2009:i:4:p:331-346. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.