A backward dual representation for the quantile hedging of Bermudan options

DOI10.1137/15M1029461MaRDI QIDQ2808185zbMATH OpenOpenAlexFDO

Authors Bruno Bouchard, Géraldine Bouveret, Jean-Francois Chassagneux

Publication date 20 May 2016

Published in SIAM Journal on Financial Mathematics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1409.8219

zbMATH Keywords

quantile hedgingstochastic target problemsBermudan options

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60) Diffusion processes (60J60) Dynamic programming in optimal control and differential games (49L20) Financial applications of other theories (91G80)

Abstract: Within a Markovian complete financial market, we consider the problem of hedging a Bermudan option with a given probability. Using stochastic target and duality arguments, we derive a backward numerical scheme for the Fenchel transform of the pricing function. This algorithm is similar to the usual American backward induction, except that it requires two additional Fenchel transformations at each exercise date. We provide numerical illustrations.

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Cited in

(8)

• A numerical scheme for the quantile hedging problem
• A comparison principle for PDEs arising in approximate hedging problems: application to Bermudan options
• A level-set approach for stochastic optimal control problems under controlled-loss constraints
• Portfolio optimization under a quantile hedging constraint
• Dual valuation and hedging of Bermudan options
• Dual representation of the cost of designing a portfolio satisfying multiple risk constraints
• scientific article; zbMATH DE number 1795854 (Why is no real title available?)
• A new Mertens decomposition of \(\mathscr{Y}^{g , \xi} \)-submartingale systems. Application to BSDEs with weak constraints at stopping times

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