First order Martingale model risk and semi-static hedging
Mathematical Finance
2025-11-05 v2 Optimization and Control
Probability
Abstract
We investigate model risk distributionally robust sensitivities for functionals on the Wasserstein space when the underlying model is constrained to the martingale class and/or is subject to constraints on the first marginal law. Our results extend the findings of Bartl, Drapeau, Obloj \& Wiesel \cite{bartl2021sensitivity} and Bartl \& Wiesel \cite{bartlsensitivityadapted} by introducing the minimization of the distributionally robust problem with respect to semi-static hedging strategies. We provide explicit characterizations of the model risk (first order) optimal semi-static hedging strategies. The distributional robustness is analyzed both in terms of the adapted Wasserstein metric and the more relevant standard Wasserstein metric.
Keywords
Cite
@article{arxiv.2410.06906,
title = {First order Martingale model risk and semi-static hedging},
author = {Nathan Sauldubois and Nizar Touzi},
journal= {arXiv preprint arXiv:2410.06906},
year = {2025}
}