Hedging in an equilibrium-based model for a large investor
AbstractWe study a financial model with a non-trivial price impact effect. In this model we consider the interaction of a large investor trading in an illiquid security, and a market maker who is quoting prices for this security. We assume that the market maker quotes the prices such that by taking the other side of the investor's demand, the market maker will arrive at maturity with maximal expected wealth. Within this model we concentrate on the issue of contingent claims' hedging.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 0910.3258.
Date of creation: Oct 2009
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-10-24 (All new papers)
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- Hans R. Stoll, .
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Rodney L. White Center for Financial Research Working Papers
2-78, Wharton School Rodney L. White Center for Financial Research.
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