Multi-period Mean–Variance Hedging Problem with Model Risk

Koichi Matsumoto and Tatsuhiko Suyama

Applied Mathematical Finance, 2024, vol. 31, issue 6, 365-384

Abstract: This paper studies a mean–variance hedging problem in the presence of model risk. The model risk is represented by a set of candidate models for the true model. We formulate the problem as a best hedging strategy selection problem under worst-case conditions. We show the existence of an optimal hedging strategy and propose a numerical calculation method using deep learning. Furthermore, we confirm the validity of our method with a simple numerical example.

Date: 2024
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DOI: 10.1080/1350486X.2025.2529784

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