ROBUST MEAN-VARIANCE HEDGING AND PRICING OF CONTINGENT CLAIMS IN A ONE PERIOD MODEL

R. Tevzadze () and T. Uzunashvili
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R. Tevzadze: Business School, Georgian–American University, 3, Alleyway II, Chavchavadze Ave. 17a, Georgia;
T. Uzunashvili: Business School, Georgian–American University, 3, Alleyway II, Chavchavadze Ave. 17a, Georgia

International Journal of Theoretical and Applied Finance (IJTAF), 2012, vol. 15, issue 03, 1-9

Abstract: In this paper, we consider the mean-variance hedging problem of contingent claims in a financial market model composed of assets with uncertain price parameters. We consider the worst case of model parameters required to solve the minimax problem. In general, such minimax problems cannot be changed to maximin problems. The main approach we develop is the randomization of the parameters, which allows us to change minimax to maximin problems, which are easier to solve. We provide an explicit solution for the robust mean-variance hedging problem in the single-period model for some types of contingent claims.

Keywords: Minimax problem; mean-variance hedging; robust optimization (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (3)

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DOI: 10.1142/S0219024912500240

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