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Date
2016-01-04Type
- Working Paper
ETH Bibliography
yes
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Abstract
We study the pricing and hedging of derivative securities with uncertainty about the volatility of the underlying asset. Rather than taking all models from a prespecified class equally seriously, we penalise less plausible ones based on their "distance" to a reference local volatility model. In the limit for small uncertainty aversion, this leads to explicit formulas for prices and hedging strategies in terms of the security’s cash gamma. Show more
Publication status
publishedExternal links
Journal / series
Swiss Finance Institute Research PaperVolume
Publisher
University of GenevaSubject
Volatility uncertainty; Smooth ambiguity aversion; Option pricing and hedging; AsymptoticsOrganisational unit
03658 - Schweizer, Martin / Schweizer, Martin
03899 - Muhle-Karbe, Johannes (ehemalig)
Related publications and datasets
Is previous version of: http://hdl.handle.net/20.500.11850/126602
Notes
Published online 3 July 2015. See also: http://e-citations.ethbib.ethz.ch/view/pub:189365.More
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ETH Bibliography
yes
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