A backward dual representation for the quantile hedging of Bermudan options
Probability
2016-02-11 v2
Abstract
Within a Markovian complete financial market, we consider the problem of hedging a Bermudan option with a given probability. Using stochastic target and duality arguments, we derive a backward numerical scheme for the Fenchel transform of the pricing function. This algorithm is similar to the usual American backward induction, except that it requires two additional Fenchel transformations at each exercise date. We provide numerical illustrations.
Keywords
Cite
@article{arxiv.1409.8219,
title = {A backward dual representation for the quantile hedging of Bermudan options},
author = {Bruno Bouchard and Jean-François Chassagneux and Géraldine Bouveret},
journal= {arXiv preprint arXiv:1409.8219},
year = {2016}
}