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Model Uncertainty and its Impact on Derivative Pricing

Abstract:

Financial derivatives written on an underlying can normally be priced and hedged accurately only after a suitable mathematical model for the underlying has been determined. This chapter explains the difficulties in finding a (unique) realistic model \u2014 model uncertainty. If the wrong model is chosen for pricing and hedging, unexpected and unwelcome financial consequences may occur. By wrong model we mean either the wrong model type (specification uncertainty) or the wrong model parameter ...

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Alok Gupta More by this author
Christoph Reisinger More by this author
Alan Whitley More by this author
URN:
uuid:57b607ec-f039-46b1-b9ed-59c71db2b163
Local pid:
oai:eprints.maths.ox.ac.uk:939

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