Misspecified asset price models and robust hedging strategies

Hyungsok Ahn Adviti and Glen Swindle

Applied Mathematical Finance, 1997, vol. 4, issue 1, 21-36

Abstract: The Black-Scholes theory of option pricing requires a perfectly specified model for the underlying price. Frequently this is taken to be a geometric Brownian motion with a constant, known volatility. In practice, parameters such as the volatility are not known precisely, but are simply estimates from either historical prices or implied volatilities. This paper presents a method for constructing hedging (trading) strategies which are 'robust' to misspecifications of the asset price model.

Keywords: Incomplete Markets; Option Hedging Strategies (search for similar items in EconPapers)
Date: 1997
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/135048697334818 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:apmtfi:v:4:y:1997:i:1:p:21-36

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAMF20

DOI: 10.1080/135048697334818

Access Statistics for this article

Applied Mathematical Finance is currently edited by Professor Ben Hambly and Christoph Reisinger

More articles in Applied Mathematical Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().