Hedging in an equilibrium-based model for a large investor
We 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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- Hans R. Stoll, .
"The Supply of Dealer Services in Securities Markets,"
Rodney L. White Center for Financial Research Working Papers
02-78, Wharton School Rodney L. White Center for Financial Research.
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- Hans R. Stoll, . "The Supply of Dealer Services in Securities Markets," Rodney L. White Center for Financial Research Working Papers 2-78, Wharton School Rodney L. White Center for Financial Research.
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- Peter Bank & Dietmar Baum, 2004. "Hedging and Portfolio Optimization in Financial Markets with a Large Trader," Mathematical Finance, Wiley Blackwell, vol. 14(1), pages 1-18.
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