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Hedging and Pricing in Imperfect Markets under Non-Convexity

Author

Listed:
  • Hirbod Assa
  • Nikolay Gospodinov

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.

Suggested Citation

  • Hirbod Assa & Nikolay Gospodinov, 2014. "Hedging and Pricing in Imperfect Markets under Non-Convexity," FRB Atlanta Working Paper 2014-13, Federal Reserve Bank of Atlanta.
    • Handle: RePEc:fip:fedawp:2014-13
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    Cited by:

    1. Nikolay Gospodinov, 2017. "Asset Co-movements: Features and Challenges," FRB Atlanta Working Paper 2017-11, Federal Reserve Bank of Atlanta.

    More about this item

    Keywords

    imperfect markets; risk measures; hedging; pricing rule; quantile regressions;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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