Robust mean–variance hedging via G-expectation

Robust Hedging via Coupling

Consider the performance of an options writer who mis-speciies the dynamics of the price process of the underlying asset by overestimating asset price volatility. When does he overprice the option? If he follows the hedging strategy suggested by his model, when does the terminal value of his strategy dominate the option payout? We show that both these events happen if the option payoo is a conv...

Robust Dynamic Hedging

We consider a robust approach to price European and American options by modeling the market dynamic as a repeated game between the nature (adversary) and the investor. This model was recently studied by Abernethy et al. [AFW12], which asserted in the case that the payoff function is convex, the no-arbitrage upper bound of a European option price converges to the Black-Scholes model at the limit...

Choquet expectation and Peng’s g−expectation

In this paper we consider two ways to generalize the mathematical expectation of a random variable, the Choquet expectation and Peng’s g-expectation. An open question has been, after making suitable restrictions to the class of random variables acted on by the Choquet expectation, for what class of expectation do these two definitions coincide? In this paper we provide a necessary and sufficien...

Robust Hedging of Longevity Risk

We consider situations where a pension plan has opted to hedge its longevity risk using an index-based longevity hedging instrument such as a q-forward or deferred longevity swap. The use of index-based hedges gives rise to basis risk, but benefits, potentially, from lower costs to the hedger and greater liquidity. We focus on quantification of optimal hedge ratios and hedge effectiveness and i...

Robust hedging of barrier options