Paper: Oct 09,2024
q-fin.MF
ID:2410.06906
First order Martingale model risk and semi-static hedging
We investigate model risk distributionally robust sensitivities for
functionals on the Wasserstein space when the underlying model is constrained
to the martingale class and/or is subject to constraints on the first marginal
law. Our results extend the findings of Bartl, Drapeau, Obloj \& Wiesel
\cite{bartl2021sensitivity} and Bartl \& Wiesel \cite{bartlsensitivityadapted}
by introducing the minimization of the distributionally robust problem with
respect to semi-static hedging strategies. We provide explicit
characterizations of the model risk (first order) optimal semi-static hedging
strategies. The distributional robustness is analyzed both in terms of the
adapted Wasserstein metric and the more relevant standard Wasserstein metric.
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Paper Author: Nathan Sauldubois,Nizar Touzi
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