A Bayesian approach to financial model calibration, uncertainty measures and optimal hedging

Thesis

In this thesis we address problems associated with financial modelling from a Bayesian point of view. Specifically, we look at the problem of calibrating financial models, measuring the model uncertainty of a claim and choosing an optimal hedging strategy. Throughout the study, the local volatility model is used as a working example to clarify the proposed methods. This thesis assumes a prior probability density for the unknown parameter in a model we try to calibrate. The prior probability ...

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Authors: Gupta, A

• Publication date: 2010
• Type of award: DPhil
• Level of award: Doctoral
• Awarding institution: Oxford University, UK
• Language: English
• Keywords: finance; model risk; risk measures; calibration; uncertainty; Bayesian; hedging; modelling
• Subjects: Mathematical finance; Mathematics