ABSTRACT
We know that in a complete market, starting with a large enough initial capital, one can construct a perfect hedge for every contingent claim. However, if the market is incomplete. the initial cost of superhedging is too high. As we know the defaultable markets usually turn into incomplete markets, and the default time which is represented by a random time cannot be hedged by investing in the available assets in the market. This issue makes superhedging too expensive in defaultable markets. Therefore, we are forced to introduce new measures of risk and start investing with a smaller initial capital than the superhedging cost. But the high cost of superhedging is not the only reason that makes efficient hedging interesting. It is true that the perfect hedge or superhedge eliminates risk but it eliminates opportunities too. There are financial institutions that seek out risk; financial institutions as insurance companies expose themselves intentionally to risk and exploit risk to generate value.
