NYC,ny

Derivatives are by no exception the end products of mathematical computation.

I assume by stating "a derivative cannot be hedged", you are referring to the kind of derivatives that does not "derive" its value from underlying "actual" products. Coz' in reality, any product can be hedged; you may not always find the perfect instrument to hedge it, but it can be done, in trading sense.

Regardless, we are able to construct & price any derivatives at will, since fundamentally they are nothing more than algorithms created by financial engineers; whether or not they have actual values is irrelevant at this point.

Not all derivatives use Black–Scholes model.   

I like your answer, what is what I what to say. If it is called "derivative" it should be derived from some assets that can be used to hedge this derivative.

and some times we do not need to hedge with underlying. Such as volatility derivative (or if we consider the derivative under SV model), we can hedge it with other options.

and for weather derivative, it is hard to make direct hedge, but we can hedge it indirectly such as using agricultural products. But still miss some risk, so for these derivatives, the price is just rely on model, not by replication or hedging.

best,

Touché man, touché. Stuff like weather derivatives are just way to crazy, they don't even use Black–Scholes.

Actually in Hull's book, he uses black scholes ! Nothing to say. So they just need a price to trade. It's just a number. So just ignore this crazy stuff :-)

Interesting to know。 TNX