Every model presents an approximation of reality and thus modeling inevitably implies model risk. We quantify model risk in a non-parametric way, i.e., in terms of the divergence from a so-called nominal model. Worst-case risk is defined as the maximal risk among all models within a given...

Frequently, dynamic hedging strategies minimizing risk exposure are not given in closed form, but need to be approximated numerically. This makes it difficult to estimate residual hedging risk, also called basis risk, when only imperfect hedging instruments are at hand. We propose an easy to...

We analyze the optimal insurance demand in a dynamic setup with two periods. In addition to the possibility to insure, the investor is allowed to transfer wealth between the two periods, i.e. she can save. While it is difficult to interpret the optimal saving and insurance decisions without...