Hedging under generalized good-deal bounds and model uncertainty

DOI10.1007/S00186-017-0588-YzbMATH Open1411.91480arXiv1607.04488OpenAlexW3121221685MaRDI QIDQ2408899FDOQ2408899

Klebert Kentia, Dirk Becherer

Publication date: 10 October 2017

Published in: Mathematical Methods of Operations Research (Search for Journal in Brave)

Abstract: We study a notion of good-deal hedging, that corresponds to good-deal valuation for generalized good-deal constraints. Under model uncertainty about the market prices of risk of hedging assets, a robust approach leads to a reduction or even elimination of a speculative component in good-deal hedging, which is shown to be equivalent to a global risk-minimization in the sense of F"ollmer and Sondermann (1986) if uncertainty is sufficiently large. Constructive results on hedges and valuations are derived from backward stochastic differential equations, including new examples with explicit formulas.

Full work available at URL: https://arxiv.org/abs/1607.04488

zbMATH Keywords

model uncertaintybackward stochastic differential equationsincomplete marketsmultiple priorsgood-deal boundsgood-deal hedging

Mathematics Subject Classification ID

Portfolio theory (91G10) Generalizations of martingales (60G48) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10)

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Cited In (6)

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