A Robust Approach to Hedging and Pricing in Imperfect Markets
This paper proposes a model-free 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 with a wide family of risk measures and p...
Main Authors: | , |
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Format: | Article |
Language: | English |
Published: |
MDPI AG
2017-07-01
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Series: | Risks |
Subjects: | |
Online Access: | https://www.mdpi.com/2227-9091/5/3/36 |
Summary: | This paper proposes a model-free 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 with a wide family of risk measures and pricing rules, and study the conditions under which the hedging problem admits a solution and pricing is possible. The practical implications of our proposed theoretical approach are illustrated with an application on hedging economic risk. |
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ISSN: | 2227-9091 |