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Financial Markets With Hedging Complements

Author

Listed:
  • Alain Chateauneuf

    (IPAG Business School, Paris, France and Paris School of Economics and Universite Paris 1, Paris, France)

  • Bernard Cornet

    (Department of Economics, University of Kansas, Lawrence, KS 66045, USA and and Paris School of Economics, Paris, France)

Abstract

This paper considers financial markets with bid-ask spreads and studies the class of markets with hedging complements, a property formalized by the complementarity of its hedging price, in the same way as strategic complements is defined on agents' payoff functions in game theory. The class of markets with hedging complements contains both markets with frictionless securities and the larger class markets with independent marketed securities together with the frictionless bond, assuming both to be arbitrage-free. Moreover, the hedging prices of the latter markets are proved to satisfy a tractable explicit formula, as the sum of a "generalized" convex Choquet integral and of a modular term. Finally this class of markets also satisfy the put-call parity of Cerreia-Vioglio, Maccheroni, Marinacci, and Montrucchio (2015).

Suggested Citation

  • Alain Chateauneuf & Bernard Cornet, 2025. "Financial Markets With Hedging Complements," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 202510, University of Kansas, Department of Economics.
    • Handle: RePEc:kan:wpaper:202510
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    File URL: https://kuwpaper.ku.edu/2025Papers/202510.pdf
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