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SUMMARY:Robust vs realistic: interpolating between model-specific and mode
 l-free settings for pricing and hedging -   Prof. Jan Obloj\,  Associate P
 rofessor of Mathematical Finance\, Fellow and Tutor in Mathematics at St J
 ohn's College\, Member of the Oxford-Man Institute of Quantitative Finance
DTSTART:20141127T170000Z
DTEND:20141127T180000Z
UID:TALK55815@talks.cam.ac.uk
CONTACT:Cerf Admin
DESCRIPTION:Classical models in mathematical finance\, even if highly comp
 lex\, typically share important methodological weaknesses: failure to acco
 unt for model uncertainty and failure to incorporate market information in
  a consistent manner. In the wake of financial crisis these have been much
  debated. \n\nIn response\, an increasingly active field of research focus
 es on model-free super/sub-hedging using the underlying and Vanilla option
 s. Explicit results often rely on pathwise inequalities and embedding tech
 niques while pricing-hedging duality is obtained using martingale optimal 
 transport methods. However\, the resulting prices and hedges are often too
  expensive to be practically relevant.\n\nIn this talk I show how to inter
 polate between the two worlds. I argue that quoted option prices should be
  incorporated through distributional constraints while beliefs\, or past d
 ata\, are most naturally included through pathwise restrictions. The resul
 ting framework is robust and flexible. It allows for realistic outputs whi
 le quantifying the impact of making assumptions. I will present abstract r
 esults about pricing-hedging duality and then discuss examples of restrict
 ions on future realised volatility and future option prices.\n\nBased on j
 oint works with Sergey Nadtochiy (University of Michigan) and Zhaoxu Hou a
 nd Peter Spoida (University of Oxford).\n
LOCATION:Judge Business School  - Room W4.03
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