Related papers: Measuring distribution risk in discrete models
The paper develops general, discrete, non-probabilistic market models and minmax price bounds leading to price intervals for European options. The approach provides the trajectory based analogue of martingale-like properties as well as a…
Measuring model risk is required by regulators on financial and insurance markets. We separate model risk into parameter estimation risk and model specification risk, and we propose expected shortfall type model risk measures applied to…
Risk-neutral pricing dictates that the discounted derivative price is a martingale in a measure equivalent to the economic measure. The residual ambiguity for incomplete markets is here resolved by minimising the entropy of the price…
This paper enhances the pricing of derivatives as well as optimal control problems to a level comprising risk. We employ nested risk measures to quantify risk, investigate the limiting behavior of nested risk measures within the classical…
In this paper, we consider the problem of equal risk pricing and hedging in which the fair price of an option is the price that exposes both sides of the contract to the same level of risk. Focusing for the first time on the context where…
We present a numerically efficient approach for learning a risk-neutral measure for paths of simulated spot and option prices up to a finite horizon under convex transaction costs and convex trading constraints. This approach can then be…
We propose a method to assess the intrinsic risk carried by a financial position $X$ when the agent faces uncertainty about the pricing rule assigning its present value. Our approach is inspired by a new interpretation of the quasiconvex…
A common assumption in financial engineering is that the market price for any derivative coincides with an objectively defined risk-neutral price - a plausible assumption only if traders collectively possess objective knowledge about the…
We propose to interpret distribution model risk as sensitivity of expected loss to changes in the risk factor distribution, and to measure the distribution model risk of a portfolio by the maximum expected loss over a set of plausible…
Model risk has a huge impact on any risk measurement procedure and its quantification is therefore a crucial step. In this paper, we introduce three quantitative measures of model risk when choosing a particular reference model within a…
Mean-deviation models, along with the existing theory of coherent risk measures, are well studied in the literature. In this paper, we characterize monotonic mean-deviation (risk) measures from a general mean-deviation model by applying a…
In this paper, we study convex risk measures with weak optimal transport penalties. In a first step, we show that these risk measures allow for an explicit representation via a nonlinear transform of the loss function. In a second step, we…
The family of admissible positions in a transaction costs model is a random closed set, which is convex in case of proportional transaction costs. However, the convexity fails, e.g. in case of fixed transaction costs or when only a finite…
We price European options in a class of models in which the volatility of the underlying risky asset depends on the short rate of interest. Our study results in an explicit pricing formula that depends on knowledge of a characteristic…
We consider derivatives written on multiple underlyings in a one-period financial market, and we are interested in the computation of model-free upper and lower bounds for their arbitrage-free prices. We work in a completely realistic…
Existing approaches to asset-pricing under model-uncertainty adapt classical utility-maximization frameworks and seek theoretical comprehensiveness. We move toward practice by considering binary model-risks and by emphasizing 'constraints'…
The issue of model risk in default modeling has been known since inception of the Academic literature in the field. However, a rigorous treatment requires a description of all the possible models, and a measure of the distance between a…
In this article we discuss the problem of calculating optimal model-independent (robust) bounds for the price of Asian options with discrete and continuous averaging. We will give geometric characterisations of the maximising and the…
In exponential semi-martingale setting for risky asset we estimate the difference of prices of options when initial physical measure $P$ and corresponding martingale measure $Q$ change to $\tilde{P}$ and $\tilde{Q}$ respectively. Then, we…
Risk assessment under different possible scenarios is a source of uncertainty that may lead to concerning financial losses. We address this issue, first, by adapting a robust framework to the class of spectral risk measures. Second, we…