Robust replication in H-self-similar Gaussian market models under uncertainty
We consider the robust hedging problem in the framework of model uncertainty, where the log-returns of the stock price are Gaussian and H-self-similar with H∈(1/2,1). These assumptions lead to two natural but mutually exclusive hypotheses, both being self-contained to fix the probabilistic model for the stock price. Namely, the investor may assume that either the market is efficient, that is the stock price process is a continuous semimartingale, or that the centred log-returns have stationary distributions. We show that to be able to super-hedge a European contingent claim with a convex payoff robustly, the investor must assume that the markets are efficient. If it turns out that the stationarity hypothesis is true, then the investor can actually super-hedge the option and thereby receive some net profit.
Year of publication: |
2011
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Authors: | Gapeev Pavel V. ; Tommi, Sottinen ; Esko, Valkeila |
Published in: |
Statistics & Risk Modeling. - De Gruyter. - Vol. 28.2011, 1, p. 37-50
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Publisher: |
De Gruyter |
Saved in:
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