Hedging Derivatives with Recalibration and Model Risk

IF 2.3 Q2 ECONOMICS

Asia-Pacific Financial Markets Pub Date : 2024-10-27 DOI:10.1007/s10690-024-09501-7

Mark Davis, Seiya Goto, Koichi Matsumoto

引用次数: 0

Abstract

This paper studies the hedging of derivatives whose pricing formulas are periodically recalibrated in the presence of model risk. We assume that the price and implied parameter processes are observed in the market but the true model of these processes is unknown. Given multiple candidates for the true model, we define a model set of candidates for the true model. We study the minimum hedging error and an optimal strategy under the worst situation and show the procedure for their calculation. Furthermore some numerical examples are provided to illustrate the impact of model risk on the optimal hedging.

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对冲衍生品与重新校准和模型风险

本文研究了在存在模型风险的情况下，定价公式需要定期重新校准的衍生品的套期保值问题。我们假设价格和隐含参数过程在市场中被观察到，但这些过程的真正模型是未知的。给定真模型的多个候选对象，我们定义真模型的候选对象模型集。研究了最坏情况下的最小对冲误差和最优策略，并给出了它们的计算过程。通过数值算例说明模型风险对最优套期保值的影响。

本文章由计算机程序翻译，如有差异，请以英文原文为准。

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来源期刊

Asia-Pacific Financial Markets ECONOMICS-

CiteScore

3.00

自引率

0.00%

发文量

期刊介绍： The current remarkable growth in the Asia-Pacific financial markets is certain to continue. These markets are expected to play a further important role in the world capital markets for investment and risk management. In accordance with this development, Asia-Pacific Financial Markets (formerly Financial Engineering and the Japanese Markets), the official journal of the Japanese Association of Financial Econometrics and Engineering (JAFEE), is expected to provide an international forum for researchers and practitioners in academia, industry, and government, who engage in empirical and/or theoretical research into the financial markets. We invite submission of quality papers on all aspects of finance and financial engineering. Here we interpret the term ''financial engineering'' broadly enough to cover such topics as financial time series, portfolio analysis, global asset allocation, trading strategy for investment, optimization methods, macro monetary economic analysis and pricing models for various financial assets including derivatives We stress that purely theoretical papers, as well as empirical studies that use Asia-Pacific market data, are welcome. Officially cited as: Asia-Pac Financ Markets