Title: Robustness of quadratic hedging strategies

Abstract:

The recent financial crisis taught the following two things. First, models based on continuous processes are not satisfactory for pricing highly structured financial derivative products. Second, the estimation of the risk related to the choice of the model cannot be neglected. Thus, the jumps in the prices of the underlying assets as well as the estimation of the risk must be taken into account. 

We aim at studying models which contain jumps, developing (partial) hedging strategies, and measuring the remaining unhedgeable risk. The problem of (partial) hedging is related to the study of backward stochastic differential equations (BSDEs) which we intend to develop in this presentation. Further, practice deals with actions discrete in time while theory develops continuous-time models. We will study the time-discretization of these BSDEs with jumps. The error  will be estimated. Finally, the performance of different hedging strategies will be studied under the time-discretization.

Location: KdVI meeting room, Science Park 105-107, F3.20