Hedging Non-Tradable Risks with Transaction Costs and Price Impact


An agent hedges exposure to a non-tradable risk factor U using a correlated traded asset S and accounts for the impact of trades on both factors. We obtain in closed-form the optimal strategy when the agent holds a linear... [ view full abstract ]


  1. Ryan Donnelly (University of Washington)
  2. Sebastian Jaimungal (University of Toronto)
  3. Alvaro Cartea (University of Oxford)

Topic Areas

Hedging , Optimal Execution , Price Impact


WE-A-EM » Optimal Execution, and LOB Models (11:30 - Wednesday, 18th July, Emmet)

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