Asset Pricing under uncertainty

Abstract : We study the effect of parameter uncertainty on a stochastic diffusion model, in particular the impact on the pricing of contingent claims, using methods from the theory of Dirichlet forms. We apply these techniques to hedging procedures in order to compute the sensitivity of SDE trajectories with respect to parameter perturbations. We show that this analysis can justify endogenously the presence of a bid-ask spread on the option prices. We also prove that if the stochastic differential equation admits a closed form representation then the sensitivities have closed form representations. We examine the case of log-normal diffusion and we show that this framework leads to a smiled implied volatility surface coherent with historical data.
Type de document :
Pré-publication, Document de travail
2012
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https://hal.archives-ouvertes.fr/hal-00679037
Contributeur : Simone Scotti <>
Soumis le : lundi 26 mars 2012 - 15:21:03
Dernière modification le : mardi 11 octobre 2016 - 14:10:43
Document(s) archivé(s) le : mercredi 27 juin 2012 - 02:20:23

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PBS-20110321.pdf
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  • HAL Id : hal-00679037, version 1
  • ARXIV : 1203.5664

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INSMI | UPMC | PMA | USPC

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Simone Scotti. Asset Pricing under uncertainty. 2012. <hal-00679037>

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