Quantile hedging in a semi-static market with model uncertainty
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Publication:1750394
DOI10.1007/S00186-017-0616-YzbMATH Open1391.91152arXiv1408.4848OpenAlexW3125124531MaRDI QIDQ1750394FDOQ1750394
Publication date: 18 May 2018
Published in: Mathematical Methods of Operations Research (Search for Journal in Brave)
Abstract: With model uncertainty characterized by a convex, possibly non-dominated set of probability measures, the agent minimizes the cost of hedging a path dependent contingent claim with given expected success ratio, in a discrete-time, semi-static market of stocks and options. Based on duality results which link quantile hedging to a randomized composite hypothesis test, an arbitrage-free discretization of the market is proposed as an approximation. The discretized market has a dominating measure, which guarantees the existence of the optimal hedging strategy and helps numerical calculation of the quantile hedging price. As the discretization becomes finer, the approximate quantile hedging price converges and the hedging strategy is asymptotically optimal in the original market.
Full work available at URL: https://arxiv.org/abs/1408.4848
Derivative securities (option pricing, hedging, etc.) (91G20) Martingales with discrete parameter (60G42) Applications of stochastic analysis (to PDEs, etc.) (60H30)
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