IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2006.12022.html
   My bibliography  Save this paper

Sensitivity analysis of Wasserstein distributionally robust optimization problems

Author

Listed:
  • Daniel Bartl
  • Samuel Drapeau
  • Jan Obloj
  • Johannes Wiesel

Abstract

We consider sensitivity of a generic stochastic optimization problem to model uncertainty. We take a non-parametric approach and capture model uncertainty using Wasserstein balls around the postulated model. We provide explicit formulae for the first order correction to both the value function and the optimizer and further extend our results to optimization under linear constraints. We present applications to statistics, machine learning, mathematical finance and uncertainty quantification. In particular, we provide explicit first-order approximation for square-root LASSO regression coefficients and deduce coefficient shrinkage compared to the ordinary least squares regression. We consider robustness of call option pricing and deduce a new Black-Scholes sensitivity, a non-parametric version of the so-called Vega. We also compute sensitivities of optimized certainty equivalents in finance and propose measures to quantify robustness of neural networks to adversarial examples.

Suggested Citation

  • Daniel Bartl & Samuel Drapeau & Jan Obloj & Johannes Wiesel, 2020. "Sensitivity analysis of Wasserstein distributionally robust optimization problems," Papers 2006.12022, arXiv.org, revised Nov 2021.
  • Handle: RePEc:arx:papers:2006.12022
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2006.12022
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jan Obloj & Johannes Wiesel, 2018. "Robust estimation of superhedging prices," Papers 1807.04211, arXiv.org, revised Apr 2020.
    2. Pierre-André Chiappori & Robert McCann & Lars Nesheim, 2010. "Hedonic price equilibria, stable matching, and optimal transport: equivalence, topology, and uniqueness," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 42(2), pages 317-354, February.
    3. G. Carlier & I. Ekeland, 2010. "Matching for teams," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 42(2), pages 397-418, February.
    4. Aharon Ben-Tal & Marc Teboulle, 1986. "Expected Utility, Penalty Functions, and Duality in Stochastic Nonlinear Programming," Management Science, INFORMS, vol. 32(11), pages 1445-1466, November.
    5. Philippe Artzner & Freddy Delbaen & Jean‐Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228, July.
    6. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    7. Daniel Bartl & Samuel Drapeau & Ludovic Tangpi, 2017. "Computational aspects of robust optimized certainty equivalents and option pricing," Papers 1706.10186, arXiv.org, revised Mar 2019.
    8. Georg Pflug & David Wozabal, 2007. "Ambiguity in portfolio selection," Quantitative Finance, Taylor & Francis Journals, vol. 7(4), pages 435-442.
    9. Pflug, Georg Ch. & Pichler, Alois & Wozabal, David, 2012. "The 1/N investment strategy is optimal under high model ambiguity," Journal of Banking & Finance, Elsevier, vol. 36(2), pages 410-417.
    10. repec:dau:papers:123456789/6728 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Michael Kupper & Max Nendel & Alessandro Sgarabottolo, 2023. "Risk measures based on weak optimal transport," Papers 2312.05973, arXiv.org.
    2. Blessing, Jonas & Kupper, Michael & Nendel, Max, 2023. "Convergence of Infintesimal Generators and Stability of Convex Montone Semigroups," Center for Mathematical Economics Working Papers 680, Center for Mathematical Economics, Bielefeld University.
    3. Erhan Bayraktar & Tao Chen, 2022. "Nonparametric Adaptive Robust Control Under Model Uncertainty," Papers 2202.10391, arXiv.org, revised Mar 2022.
    4. Daniel Bartl & Ariel Neufeld & Kyunghyun Park, 2023. "Sensitivity of robust optimization problems under drift and volatility uncertainty," Papers 2311.11248, arXiv.org.
    5. Daniel Bartl & Johannes Wiesel, 2022. "Sensitivity of multiperiod optimization problems in adapted Wasserstein distance," Papers 2208.05656, arXiv.org, revised Jun 2023.
    6. Jonas Blessing & Michael Kupper & Alessandro Sgarabottolo, 2024. "Discrete approximation of risk-based prices under volatility uncertainty," Papers 2411.00713, arXiv.org.
    7. Ariel Neufeld & Matthew Ng Cheng En & Ying Zhang, 2024. "Robust SGLD algorithm for solving non-convex distributionally robust optimisation problems," Papers 2403.09532, arXiv.org.
    8. Ruslan Mirmominov & Johannes Wiesel, 2024. "A dynamic programming principle for multiperiod control problems with bicausal constraints," Papers 2410.23927, arXiv.org.
    9. Fuhrmann, Sven & Kupper, Michael & Nendel, Max, 2021. "Wasserstein Perturbations of Markovian Transition Semigroups," Center for Mathematical Economics Working Papers 649, Center for Mathematical Economics, Bielefeld University.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Viet Anh Nguyen & Fan Zhang & Shanshan Wang & Jose Blanchet & Erick Delage & Yinyu Ye, 2021. "Robustifying Conditional Portfolio Decisions via Optimal Transport," Papers 2103.16451, arXiv.org, revised Apr 2024.
    2. Daniel Bartl & Samuel Drapeau & Ludovic Tangpi, 2017. "Computational aspects of robust optimized certainty equivalents and option pricing," Papers 1706.10186, arXiv.org, revised Mar 2019.
    3. Marcelo Brutti Righi, 2018. "A theory for combinations of risk measures," Papers 1807.01977, arXiv.org, revised May 2023.
    4. Grechuk, Bogdan & Zabarankin, Michael, 2018. "Direct data-based decision making under uncertainty," European Journal of Operational Research, Elsevier, vol. 267(1), pages 200-211.
    5. Viet Anh Nguyen & Soroosh Shafiee & Damir Filipovi'c & Daniel Kuhn, 2021. "Mean-Covariance Robust Risk Measurement," Papers 2112.09959, arXiv.org, revised Nov 2023.
    6. David Wozabal, 2014. "Robustifying Convex Risk Measures for Linear Portfolios: A Nonparametric Approach," Operations Research, INFORMS, vol. 62(6), pages 1302-1315, December.
    7. Nilay Noyan & Gábor Rudolf & Miguel Lejeune, 2022. "Distributionally Robust Optimization Under a Decision-Dependent Ambiguity Set with Applications to Machine Scheduling and Humanitarian Logistics," INFORMS Journal on Computing, INFORMS, vol. 34(2), pages 729-751, March.
    8. Jay Cao & Jacky Chen & John Hull & Zissis Poulos, 2021. "Deep Hedging of Derivatives Using Reinforcement Learning," Papers 2103.16409, arXiv.org.
    9. Heller, Yuval & Schreiber, Amnon, 2020. "Short-term investments and indices of risk," Theoretical Economics, Econometric Society, vol. 15(3), July.
    10. Patrice Gaillardetz & Saeb Hachem, 2019. "Risk-Control Strategies," Papers 1908.02228, arXiv.org.
    11. Jinglun Yao & Sabine Laurent & Brice B'enaben, 2017. "Managing Volatility Risk: An Application of Karhunen-Lo\`eve Decomposition and Filtered Historical Simulation," Papers 1710.00859, arXiv.org.
    12. Virmani, Vineet, 2014. "Model Risk in Pricing Path-dependent Derivatives: An Illustration," IIMA Working Papers WP2014-03-22, Indian Institute of Management Ahmedabad, Research and Publication Department.
    13. Scheuenstuhl, Gerhard & Zagst, Rudi, 2008. "Integrated portfolio management with options," European Journal of Operational Research, Elsevier, vol. 185(3), pages 1477-1500, March.
    14. Carr, Peter & Geman, Helyette & Madan, Dilip B., 2001. "Pricing and hedging in incomplete markets," Journal of Financial Economics, Elsevier, vol. 62(1), pages 131-167, October.
    15. Alexandre Carbonneau & Fr'ed'eric Godin, 2021. "Deep equal risk pricing of financial derivatives with non-translation invariant risk measures," Papers 2107.11340, arXiv.org.
    16. Fei Sun & Jingchao Li & Jieming Zhou, 2018. "Dynamic risk measures with fluctuation of market volatility under Bochne-Lebesgue space," Papers 1806.01166, arXiv.org, revised Mar 2024.
    17. Steve Zymler & Daniel Kuhn & Berç Rustem, 2013. "Worst-Case Value at Risk of Nonlinear Portfolios," Management Science, INFORMS, vol. 59(1), pages 172-188, July.
    18. Manish Bansal & Yingqiu Zhang, 2021. "Scenario-based cuts for structured two-stage stochastic and distributionally robust p-order conic mixed integer programs," Journal of Global Optimization, Springer, vol. 81(2), pages 391-433, October.
    19. Jinwook Lee & András Prékopa, 2015. "Decision-making from a risk assessment perspective for Corporate Mergers and Acquisitions," Computational Management Science, Springer, vol. 12(2), pages 243-266, April.
    20. Mercurio, Fabio, 2001. "Claim pricing and hedging under market incompleteness and "mean-variance" preferences," European Journal of Operational Research, Elsevier, vol. 133(3), pages 635-652, September.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2006.12022. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.