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Characterization of the Value Process in Robust Efficient Hedging

Author

Listed:
  • Daniel Hernández-Hernández

    (CIMAT)

  • Erick Treviño-Aguilar

    (University of Guanajuato)

Abstract

This paper examines the value function of a partial hedging problem under model ambiguity. The study is based on a dual representation of the value function obtained by the authors. We formulate a family of control problems, whose value processes are characterized as solutions of a backward stochastic differential equation and give a sufficient condition to identify optimal controls.

Suggested Citation

  • Daniel Hernández-Hernández & Erick Treviño-Aguilar, 2014. "Characterization of the Value Process in Robust Efficient Hedging," Journal of Optimization Theory and Applications, Springer, vol. 161(1), pages 56-75, April.
    • Handle: RePEc:spr:joptap:v:161:y:2014:i:1:d:10.1007_s10957-012-0168-5
    DOI: 10.1007/s10957-012-0168-5
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    References listed on IDEAS

    as
    1. Hans FÃllmer & Peter Leukert, 2000. "Efficient hedging: Cost versus shortfall risk," Finance and Stochastics, Springer, vol. 4(2), pages 117-146.
    2. Ying Hu & Peter Imkeller & Matthias Muller, 2005. "Utility maximization in incomplete markets," Papers math/0508448, arXiv.org.
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