Hedging in an equilibrium-based model for a large investor

Details Hedging in an equilibrium-based model for a large investor Hedging in an equilibrium-based model for a large investor

2009-10-17

arxiv.org/abs/0910.3258v1

Economy

Quantitative Finance

Pricing of Securities

Scientific paper

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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