Hedging Under Worst-Case-Scenario in a Market Driven by Time-Changed Lévy Noises

Giulia Di Nunno () and Erik Hove Karlsen ()
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Giulia Di Nunno: University of Oslo, CMA and Department of Mathematics
Erik Hove Karlsen: University of Oslo, Department of Mathematics

A chapter in The Fascination of Probability, Statistics and their Applications, 2016, pp 465-499 from Springer

Abstract: Abstract In an incomplete market driven by time-changed Lévy noises we consider the problem of hedging a financial position coupled with the underlying risk of model uncertainty. Then we study hedging under worst-case-scenario. The proposed strategies are not necessarily self-financing and include the interplay of a cost process to achieve the perfect hedge at the end of the time horizon. The hedging problem is tackled in the framework of stochastic differential games and it is treated via backward stochastic differential equations. Two different information flows are considered and the solutions compared.

Keywords: Model uncertainty; Hedging; BSDEs; Stochastic differential games; Time-change; Martingale random fields (search for similar items in EconPapers)
JEL-codes: C70 G11 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-319-25826-3_22

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DOI: 10.1007/978-3-319-25826-3_22

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