No label defined (Q4495097)

The paper begins with a brief introduction to Mathematical Finance including the Black-Scholes formula. The author reviews the ``greek'' parameters such as vega which is the derivative of the option price with respect to small changes in volatility, and explains how these parameters are used to manage portfolio risk. The author proposes a framework to study the sensitivity of the portfolio to large changes in volatility. Whereas the use of stochastic volatility or ARCH models raises the question of model specification, the author postulates the Uncertain Volatility Model (UVM): \(\sigma_{\min}(t) \leq \sigma_t \leq \sigma_{\max}(t)\) where \(0<\sigma_{\min}\leq \sigma_{\max}(t)\) are deterministic functions. The resulting formula (analogous to Black Scholes) gives an option valuation which provides protection against all volatility paths in the band. In the concluding section, he proposes a \(\lambda\)-UVM model which builds on his earlier UVM model by incorporating certain a priori information. For the entire collection see [Zbl 0937.00058].