Measures of model uncertainty and calibrated option bounds
| dc.citation.epage | 350 | en_US |
| dc.citation.issueNumber | 3 | en_US |
| dc.citation.spage | 335 | en_US |
| dc.citation.volumeNumber | 58 | en_US |
| dc.contributor.author | Pınar, M. Ç. | en_US |
| dc.date.accessioned | 2016-02-08T10:04:44Z | |
| dc.date.available | 2016-02-08T10:04:44Z | |
| dc.date.issued | 2009 | en_US |
| dc.department | Department of Industrial Engineering | en_US |
| dc.description.abstract | Recently, Cont introduced a quantitative framework for measuring model uncertainty in the context of derivative pricing [Model uncertainty and its impact on the pricing of derivative instruments, Math. Finance, 16(3) (2006), pp. 519-547]. Two measures of model uncertainty were proposed: one measure based on a coherent risk measure compatible with market prices of derivatives and another measure based on convex risk measures. We show in a discrete time, finite state probability setting, that the two measures introduced by Cont are closely related to calibrated option bounds studied recently by King et al. [Calibrated option bounds, Inf. J. Ther. Appl. Financ., 8(2) (2005), pp. 141-159]. The precise relationship is established through convex programming duality. As a result, the model uncertainty measures can be computed efficiently by solving convex programming or linear programming problems after a suitable discretization. Numerical results using S&P 500 options are given. | en_US |
| dc.description.provenance | Made available in DSpace on 2016-02-08T10:04:44Z (GMT). No. of bitstreams: 1 bilkent-research-paper.pdf: 70227 bytes, checksum: 26e812c6f5156f83f0e77b261a471b5a (MD5) Previous issue date: 2009 | en |
| dc.identifier.doi | 10.1080/02331930902741770 | en_US |
| dc.identifier.eissn | 1026-7662 | |
| dc.identifier.issn | 0233-1934 | |
| dc.identifier.uri | http://hdl.handle.net/11693/22788 | |
| dc.language.iso | English | en_US |
| dc.publisher | Taylor & Francis | en_US |
| dc.relation.isversionof | http://dx.doi.org/10.1080/02331930902741770 | en_US |
| dc.source.title | Optimization | en_US |
| dc.subject | Model uncertainty | en_US |
| dc.subject | Option pricing | en_US |
| dc.subject | Incomplete markets | en_US |
| dc.subject | Coherent risk measures | en_US |
| dc.subject | Convex risk measures; | en_US |
| dc.subject | Calibrated option bound | en_US |
| dc.subject | Duality | en_US |
| dc.title | Measures of model uncertainty and calibrated option bounds | en_US |
| dc.type | Article | en_US |
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