Hedging in an equilibrium-based model for a large investor
Pricing of Securities
2009-10-20 v1 Trading and Market Microstructure
Abstract
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.
Cite
@article{arxiv.0910.3258,
title = {Hedging in an equilibrium-based model for a large investor},
author = {David German},
journal= {arXiv preprint arXiv:0910.3258},
year = {2009}
}