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Hedging and pricing in imperfect markets under non-convexity

Assa, Hirbod; Gospodinov, Nikolaj - 2014

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 … proposed theoretical approach are illustrated with an application on hedging economic risk. …

Persistent link: https://www.econbiz.de/10010395974

Dynamic self-fulfilling fire sales

Khorrami, Paymon; Mendo, Fernando - 2024

Why do fire sales occur if many risks are hedgeable? We study a version of Brunnermeier and Sannikov (2014) in which all fundamental risks can be hedged frictionlessly. Our analysis shows that fire sales are inherently self-fulfilling. Fundamental shocks can never cause fire sales, and an...

Persistent link: https://www.econbiz.de/10015329693

Liquidity models in continuous and discrete time

Gökay, Selim; Roch, Alexandre F.; Soner, Halil Mete - 2010

, hedging and super-hedging options for a large trader, utility maximization in illiquid markets and price impact models with …

Persistent link: https://www.econbiz.de/10008798305

Strategic technology adoption and hedging under incomplete markets

Leippold, Markus; Stromberg, Jacob - 2014

We investigate the implications of technological innovation and non-diversifiable risk on entrepreneurial entry and optimal portfolio choice. In a real options model where two risk-averse individuals strategically decide on technology adoption, we show that the impact of non-diversifiable risk...

Persistent link: https://www.econbiz.de/10011293735

Financial frictions and the wealth distribution

Fernández-Villaverde, Jesús; Hurtado, Samuel; Nuño, Galo - 2020

We postulate a nonlinear DSGE model with a financial sector and heterogeneous households. In our model, the interaction between the supply of bonds by the financial sector and the precautionary demand for bonds by households produces significant endogenous aggregate risk. This risk induces an...

Persistent link: https://www.econbiz.de/10012260513

Decomposition of optimal dynamic portfolio choice with wealth-dependent utilities in incomplete markets

Li, Chenxu; Scaillet, Olivier; Shen, Yiwen - 2020

This paper provides a novel five-component decomposition of optimal dynamic portfolio choice. It reveals the simultaneous impacts from market incompleteness and wealth-dependent utilities. The decomposition leads to implementation via either closed-form solutions or Monte Carlo simulations. With...

Persistent link: https://www.econbiz.de/10012219152

Financial markets with volatility uncertainty

Vorbrink, Jörg - 2010

We investigate financial markets under model risk caused by uncertain volatilities. For this purpose we consider a financial market that features volatility uncertainty. To have a mathematical consistent framework we use the notion of G-expectation and its corresponding G-Brownian motion...

Persistent link: https://www.econbiz.de/10008746123

Financial frictions, financial shocks and labour market fluctuations in Canada

Zhang, Yahong - 2011

What are the effects of financial market imperfections on unemployment and vacancies in Canada? The author estimates the model of Zhang (2011) – a standard monetary dynamic stochastic general-equilibrium model augmented with explicit financial and labour market frictions – with Canadian data...

Persistent link: https://www.econbiz.de/10009410433

Consumer default with complete markets : default-based pricing and finite punishment

Mateos-Planas, Xavier; Seccia, Giulio - 2013

This paper studies economies with complete markets where there is positive default on consumer debt. In a simple tractable two-period model, households can default partially, at a finite punishment cost, and competitive intermediaries price loans of different sizes separately. This environment...

Persistent link: https://www.econbiz.de/10010210815

The financial accelerator and market-based debt instruments : a role for maturities?

Kühl, Michael - 2014

This paper shows how the average maturity of corporate bonds can affect the transmission of shocks if financial frictions prevail. We modify a standard financial accelerator model à la Bernanke, Gertler, and Gilchrist (1999) and allow for market-based debt which has a market-determined price....

Persistent link: https://www.econbiz.de/10010357605