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arXiv · 2302.08838

Measuring distribution risk in discrete models

Roberto Fontana·Patrizia Semeraro
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Abstract

Model risk measures consequences of choosing a model in a class of possible alternatives. We find analytical and simulated bounds for payoff functions on classes of plausible alternatives of a given discrete model. We measure the impact of choosing a risk-neutral measure on convex derivative pricing in incomplete markets. We find analytical bounds for prices of European and American options in the class of all risk-neutral measures, and we also find simulated bounds for given classes of perturbations of the minimal martingale equivalent measure.

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Roberto Fontana, Patrizia Semeraro. 2023-02-17. Measuring distribution risk in discrete models. https://arxiv.org/abs/2302.08838

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