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Robust Mean-Variance Hedging And Pricing Of Contingent Claims In A One Period Model

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  • R. TEVZADZE

    (Business School, Georgian–American University, 3, Alleyway II, Chavchavadze Ave. 17a, Georgia;
    Georgian Technical University, 77, Kostava St., Tbilisi, Georgia)

  • T. UZUNASHVILI

    (Business School, Georgian–American University, 3, Alleyway II, Chavchavadze Ave. 17a, Georgia)

Abstract

In this paper, we consider the mean-variance hedging problem of contingent claims in a financial market model composed of assets with uncertain price parameters. We consider the worst case of model parameters required to solve the minimax problem. In general, such minimax problems cannot be changed to maximin problems. The main approach we develop is the randomization of the parameters, which allows us to change minimax to maximin problems, which are easier to solve. We provide an explicit solution for the robust mean-variance hedging problem in the single-period model for some types of contingent claims.

Suggested Citation

  • R. Tevzadze & T. Uzunashvili, 2012. "Robust Mean-Variance Hedging And Pricing Of Contingent Claims In A One Period Model," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 15(03), pages 1-9.
    • Handle: RePEc:wsi:ijtafx:v:15:y:2012:i:03:n:s0219024912500240
    DOI: 10.1142/S0219024912500240
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    Citations

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    Cited by:

    1. Koichi Matsumoto & Keita Shimizu, 2020. "Hedging Derivatives on Two Assets with Model Risk," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 27(1), pages 83-95, March.
    2. Biagini, Francesca & Mancin, Jacopo & Brandis, Thilo Meyer, 2019. "Robust mean–variance hedging via G-expectation," Stochastic Processes and their Applications, Elsevier, vol. 129(4), pages 1287-1325.
    3. Francesca Biagini & Jacopo Mancin & Thilo Meyer Brandis, 2016. "Robust Mean-Variance Hedging via G-Expectation," Papers 1602.05484, arXiv.org, revised Aug 2016.

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