A theoretical framework for the pricing of contingent claims in the presence of model uncertainty

DOI10.1214/105051606000000169zbMATH Open1142.91034OpenAlexW2006080424MaRDI QIDQ997952FDOQ997952

Authors: Laurent Denis, Claude Martini 

Publication date: 8 August 2007

Published in: The Annals of Applied Probability (Search for Journal in Brave)

Abstract: The aim of this work is to evaluate the cheapest superreplication price of a general (possibly path-dependent) European contingent claim in a context where the model is uncertain. This setting is a generalization of the uncertain volatility model (UVM) introduced in by Avellaneda, Levy and Paras. The uncertainty is specified by a family of martingale probability measures which may not be dominated. We obtain a partial characterization result and a full characterization which extends Avellaneda, Levy and Paras results in the UVM case.

Full work available at URL: https://arxiv.org/abs/math/0607111

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zbMATH Keywords

option pricingcapacityuncertain volatility modelsuperreplicationstochastic integralnondominated model

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Potentials and capacities on other spaces (31C15) Martingales with continuous parameter (60G44) Stochastic integrals (60H05) Probabilistic potential theory (60J45)

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