Derivative Securities

Pricing and hedging derivative securities in markets with uncertain volatilities

Submitted by loner on 19 June, 2007 - 5:30pm

Derivative Securities
Derivatives
Finance
Hedging Derivative Securities

...a model for pricing and hedging derivative securities and option portfolios in an environment where the volatility is not known precisely, but is assumed instead to lie between two extreme values $\sigma_{min}$ and $\sigma_{max}$ .... ...the "pricing" volatility is selected dynamically from the two extreme values $\sigma_{min}$ , $\sigma_{max}$ , according to the convexity of the value-function.....