Measuring distribution risk in discrete models
Mathematical Finance
2023-02-20 v1
Abstract
Model risk measures consequences of choosing a model in a class of possible alternatives. We find analytical and simulated bounds for payoff functions on classes of plausible alternatives of a given discrete model. We measure the impact of choosing a risk-neutral measure on convex derivative pricing in incomplete markets. We find analytical bounds for prices of European and American options in the class of all risk-neutral measures, and we also find simulated bounds for given classes of perturbations of the minimal martingale equivalent measure.
Cite
@article{arxiv.2302.08838,
title = {Measuring distribution risk in discrete models},
author = {Roberto Fontana and Patrizia Semeraro},
journal= {arXiv preprint arXiv:2302.08838},
year = {2023}
}