Journal
MATHEMATICAL METHODS OF OPERATIONS RESEARCH
Volume 86, Issue 1, Pages 171-214Publisher
SPRINGER HEIDELBERG
DOI: 10.1007/s00186-017-0588-y
Keywords
Good-deal bounds; Good-deal hedging; Model uncertainty; Incomplete markets; Multiple priors; Backward stochastic differential equations
Funding
- German Science Foundation DFG via the Berlin Mathematical School
- German Science Foundation DFG via the Research Training Group 1845 Sto-A
Ask authors/readers for more resources
We study a notion of good-deal hedging, that corresponds to good-deal valuation and is described by a uniform supermartingale property for the tracking errors of hedging strategies. For generalized good-deal constraints, defined in terms of correspondences for the Girsanov kernels of pricing measures, constructive results on good-deal hedges and valuations are derived from backward stochastic differential equations, including new examples with explicit formulas. Under model uncertainty about the market prices of risk of hedging assets, a robust approach leads to a reduction or even elimination of a speculative component in good-deal hedging, which is shown to be equivalent to a global risk minimization in the sense of Follmer and Sondermann (1986) if uncertainty is sufficiently large.
Authors
I am an author on this paper
Click your name to claim this paper and add it to your profile.
Reviews
Recommended
No Data Available