Model uncertainty and performance in option pricing

A simple binomial tree model with additional statistical uncertainty in the stock process is considered. The path-wise add-on cost needed for hedging is computed. This is used for evaluating the performance of any initial price with simple methods of stochastic programming.

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Bibliographic Details
Main Authors: Gyorgy, L.G., Michaletsky, G., Rasonyi, M.
Format: Conference Proceeding
Language:English
Subjects:
Automation
Bonding
Costs
Filtration
Portfolios
Pricing
Probability
Statistics
Stochastic processes
Uncertainty
Online Access:Request full text
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Description
Summary:A simple binomial tree model with additional statistical uncertainty in the stock process is considered. The path-wise add-on cost needed for hedging is computed. This is used for evaluating the performance of any initial price with simple methods of stochastic programming.
ISSN:0191-2216
DOI:10.1109/CDC.1999.827979