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Robust Mean-Variance Hedging via G-Expectation

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  • Francesca Biagini
  • Jacopo Mancin
  • Thilo Meyer Brandis

Abstract

In this paper we study mean-variance hedging under the G-expectation framework. Our analysis is carried out by exploiting the G-martingale representation theorem and the related probabilistic tools, in a contin- uous financial market with two assets, where the discounted risky one is modeled as a symmetric G-martingale. By tackling progressively larger classes of contingent claims, we are able to explicitly compute the optimal strategy under general assumptions on the form of the contingent claim.

Suggested Citation

  • Francesca Biagini & Jacopo Mancin & Thilo Meyer Brandis, 2016. "Robust Mean-Variance Hedging via G-Expectation," Papers 1602.05484, arXiv.org, revised Aug 2016.
    • Handle: RePEc:arx:papers:1602.05484
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    References listed on IDEAS

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    1. Soner, H. Mete & Touzi, Nizar & Zhang, Jianfeng, 2011. "Martingale representation theorem for the G-expectation," Stochastic Processes and their Applications, Elsevier, vol. 121(2), pages 265-287, February.
    2. Hu, Mingshang & Ji, Shaolin & Peng, Shige & Song, Yongsheng, 2014. "Comparison theorem, Feynman–Kac formula and Girsanov transformation for BSDEs driven by G-Brownian motion," Stochastic Processes and their Applications, Elsevier, vol. 124(2), pages 1170-1195.
    3. Osuka, Emi, 2013. "Girsanov’s formula for G-Brownian motion," Stochastic Processes and their Applications, Elsevier, vol. 123(4), pages 1301-1318.
    4. Vorbrink, Jörg, 2014. "Financial markets with volatility uncertainty," Journal of Mathematical Economics, Elsevier, vol. 53(C), pages 64-78.
    5. 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.
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    Cited by:

    1. Lin, Jyh-Horng & Li, Xuelian & Lin, Panpan, 2022. "Could we rely on credit swap hedging as a substitute for insurer blockchain technology involvement?," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 266-281.

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