Performance of hedging strategies in interval models
Berend Roorda; Jacob Engwerda; Johannes M. Schumacher
Kybernetika (2005)
- Volume: 41, Issue: 5, page [575]-592
- ISSN: 0023-5954
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topRoorda, Berend, Engwerda, Jacob, and Schumacher, Johannes M.. "Performance of hedging strategies in interval models." Kybernetika 41.5 (2005): [575]-592. <http://eudml.org/doc/33775>.
@article{Roorda2005,
abstract = {For a proper assessment of risks associated with the trading of derivatives, the performance of hedging strategies should be evaluated not only in the context of the idealized model that has served as the basis of strategy development, but also in the context of other models. In this paper we consider the class of so-called interval models as a possible testing ground. In the context of such models the fair price of a derivative contract is not uniquely determined and we characterize the interval of fair prices for European-style options with convex payoff both in terms of strategies and in terms of martingale measures. We compare interval models to tree models as a basis for worst-case analysis. It turns out that the added flexibility of the interval model may have an important effect on the size of the worst-case loss.},
author = {Roorda, Berend, Engwerda, Jacob, Schumacher, Johannes M.},
journal = {Kybernetika},
keywords = {uncertain volatility; robustness; option pricing; delta hedging; binomial tree martingale measure; uncertain volatility; robustness; option pricing; delta hedging; binomial tree martingale measure},
language = {eng},
number = {5},
pages = {[575]-592},
publisher = {Institute of Information Theory and Automation AS CR},
title = {Performance of hedging strategies in interval models},
url = {http://eudml.org/doc/33775},
volume = {41},
year = {2005},
}
TY - JOUR
AU - Roorda, Berend
AU - Engwerda, Jacob
AU - Schumacher, Johannes M.
TI - Performance of hedging strategies in interval models
JO - Kybernetika
PY - 2005
PB - Institute of Information Theory and Automation AS CR
VL - 41
IS - 5
SP - [575]
EP - 592
AB - For a proper assessment of risks associated with the trading of derivatives, the performance of hedging strategies should be evaluated not only in the context of the idealized model that has served as the basis of strategy development, but also in the context of other models. In this paper we consider the class of so-called interval models as a possible testing ground. In the context of such models the fair price of a derivative contract is not uniquely determined and we characterize the interval of fair prices for European-style options with convex payoff both in terms of strategies and in terms of martingale measures. We compare interval models to tree models as a basis for worst-case analysis. It turns out that the added flexibility of the interval model may have an important effect on the size of the worst-case loss.
LA - eng
KW - uncertain volatility; robustness; option pricing; delta hedging; binomial tree martingale measure; uncertain volatility; robustness; option pricing; delta hedging; binomial tree martingale measure
UR - http://eudml.org/doc/33775
ER -
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