Mathematical Sciences - Stochastic Analysis Common Seminar Series - "Cost efficient strategies under model ambiguity" by Carole Bernard (Grenoble Ecole de Management & Vrije Universiteit Brussel) - Stratton Hall 306

Monday, October 09, 2017
3:00 pm to 4:00 pm

Location

Floor/Room #: 
306

Stochastic Analysis Common Seminar Series - : Carole Bernard (Grenoble Ecole de Management & Vrije Universiteit Brussel) SH306

Title: Cost efficient strategies under model ambiguity

Abstract: A strategy is cost-efficient if it allows to achieve a given probability distribution with the minimum possible budget. The solution to this  problem depends crucially on the fact that a single real-world measure P is available to the investor. In most applications of interest however, a historical measure P is neither given nor can it be estimated with accuracy from available data. To incorporate this uncertainty about the measure P, we assume that, instead of a single measure, a class of plausible prior models is available and consider a “robust cost-efficiency” problems. In a market in which all calls and puts are traded, we are able to derive optimal strategies in the presence of drift and/or volatility uncertainty. Also, we find interesting connections between robust cost-efficiency problems and the maxmin expected utility setting of Gilboa and Schmeidler (1989).  This is joint work with Thibaut Lux (VUB) and Steven Vanduffel (VUB)