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Risks 2017, 5(3), 36;

A Robust Approach to Hedging and Pricing in Imperfect Markets

Institute for Financial and Actuarial Mathematics, University of Liverpool, Mathematical Sciences Building, Peach Street, Liverpool L69 7ZL, UK
Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street N.E., Atlanta, GA 30309-4470, USA
The views expressed here are the authors’ and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System.
Author to whom correspondence should be addressed.
Academic Editor: Lea Petrella
Received: 5 March 2017 / Revised: 13 July 2017 / Accepted: 15 July 2017 / Published: 18 July 2017
(This article belongs to the Special Issue Quantile Regression for Risk Assessment)
Full-Text   |   PDF [405 KB, uploaded 29 September 2017]


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. View Full-Text
Keywords: imperfect markets; risk measures; hedging; pricing rule; quantile regression imperfect markets; risk measures; hedging; pricing rule; quantile regression
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited (CC BY 4.0).

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Assa, H.; Gospodinov, N. A Robust Approach to Hedging and Pricing in Imperfect Markets. Risks 2017, 5, 36.

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