Seminar Event Detail

Financial/Actuarial Mathematics

Date:  Friday, February 12, 2016
Location:  1360 East Hall (4:00 PM to 5:00 PM)

Title:  Model Uncertainty, Recalibration, and the Emergence of Delta-Vega Hedging

Abstract:   We study option pricing and hedging with uncertainty about a Black-Scholes reference model which is dynamically recalibrated to the market price of a liquidly traded vanilla option. For dynamic trading in the underlying asset and this vanilla option, delta-vega hedging is asymptotically optimal in the limit for small uncertainty aversion. The corresponding indifference price corrections are determined by the disparity between the vegas, gammas, vannas, and volgas of the non-traded and the liquidly traded options.

This is joint work with Johannes Muhle-Karbe.

Files: 3710_Hermann.pdf

Speaker:  Sebastian Hermann
Institution:  ETH

Event Organizer:   Erhan Bayraktar


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