Model uncertainty and its impact on the pricing of derivative instruments

@inproceedings{Appliques2004ModelUA,
title={Model uncertainty and its impact on the pricing of derivative instruments},
author={Rama CONT Centre de Math{\'e}matiques Appliqu{\'e}es},
year={2004}
}

Rama CONT Centre de Mathématiques Appliquées

Published 2004

Model uncertainty, in the context of derivative pricing, results in mispricing of contingent claims due to uncertainty on the choice of the pricing models. We introduce here a quantitative framework for measuring model uncertainty in option pricing models. After discussing some properties which a quantitative measure of model uncertainty should verify in order to be useful and relevant in the context of risk management of derivative instruments, we propose two methods for measuring model… CONTINUE READING