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

DOI10.1214/105051606000000169zbMATH Open1142.91034arXivmath/0607111OpenAlexW2006080424MaRDI QIDQ997952FDOQ997952

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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Cited In (only showing first 100 items - show all)

• Extension and Application of Itô's Formula UnderG-Framework
• Second-order BSDEs with jumps: formulation and uniqueness
• Second-order BSDEs with general reflection and game options under uncertainty
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• Optimal arbitrage under model uncertainty
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• Exponential inequalities under the sub-linear expectations with applications to laws of the iterated logarithm
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• ROBUST UTILITY MAXIMIZATION IN NONDOMINATED MODELS WITH 2BSDE: THE UNCERTAIN VOLATILITY MODEL
• Stochastic control for a class of nonlinear kernels and applications
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• No-arbitrage with multiple-priors in discrete time
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• Backward stochastic differential equations driven by \(G\)-Brownian motion
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• On complete convergence for extended independent random variables under sub-linear expectations
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• Good deal hedging and valuation under combined uncertainty about drift and volatility
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• Three series theorem for independent random variables under sub-linear expectations with applications
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• Quasi-sure exponential stabilization of stochastic systems induced by \(G\)-Brownian motion with discrete time feedback control

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