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Characterization of the Value Process in Robust Efficient Hedging

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Abstract

This paper examines the value function of a partial hedging problem under model ambiguity. The study is based on a dual representation of the value function obtained by the authors. We formulate a family of control problems, whose value processes are characterized as solutions of a backward stochastic differential equation and give a sufficient condition to identify optimal controls.

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Acknowledgements

DHH wishes to express his gratitude to N. El Karoui and N. Touzi for stimulating discussions and helpful comments. It is also greatly acknowledged the hospitality of the CMAP of the Ecole Polytechnique.

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Authors and Affiliations

  1. CIMAT, Jalisco S/N, Col. Valenciana, C.P. 36240, Guanajuato, Gto, México

    Daniel Hernández-Hernández

  2. Department of Economics and Finance, University of Guanajuato, Campus Guanajuato DCEA-Sede Marfil, C.P. 36250, Guanajuato, Gto, México

    Erick Treviño-Aguilar

Authors
  1. Daniel Hernández-Hernández
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  2. Erick Treviño-Aguilar
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Correspondence to Daniel Hernández-Hernández.

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Hernández-Hernández, D., Treviño-Aguilar, E. Characterization of the Value Process in Robust Efficient Hedging. J Optim Theory Appl 161, 56–75 (2014). https://doi.org/10.1007/s10957-012-0168-5

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  • DOI: https://doi.org/10.1007/s10957-012-0168-5

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