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Content archived on 2024-05-27

Robust Financial Mathematics: model-ambiguous framework for valuation and risk management

Objective

"The last forty years have seen a remarkable interplay between Mathematics and contemporary Finance. At the heart of the successful growth of Mathematical Finance was a perfect fit between its dominant model--specific framework and the tools of stochastic analysis. However, this approach has always had important limitations, and the dangers of overreach have been illustrated by the dramatic events of the recent financial crisis.
I set out to create a coherent mathematical framework for valuation, hedging and risk management, which starts with the market information and not an a priori probabilistic setup. The main objectives are: (i) to incorporate both historical data and current option prices as inputs of the proposed robust framework, and (ii) to establish pricing-hedging duality, define the concept of no-arbitrage and prove a Fundamental Theorem of Asset Pricing, all in a constrained setting where the market information, and not a probability space, is fixed from the outset. Further, I will test the performance of robust valuation and hedging methods.
The project proposes a genuine change of paradigm. It requires building novel mathematical tools combining pathwise stochastic calculus, embedding problems, martingale optimal transport, variation inequalities as well as numerical methods.
Significant research efforts have focused on introducing and investigating a form of model uncertainty in Financial Mathematics. This project makes an important next step. Motivated by recent contributions, it builds a framework which consistently combines model ambiguity with a comprehensive use of market information. Further, it has built-in flexibility to interpolate between the model-specific and model-independent settings. It offers a new theoretical foundation opening horizons for future research. Moreover, it provides novel tools which could be applied by the financial industry."

Fields of science (EuroSciVoc)

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Topic(s)

Calls for proposals are divided into topics. A topic defines a specific subject or area for which applicants can submit proposals. The description of a topic comprises its specific scope and the expected impact of the funded project.

Call for proposal

Procedure for inviting applicants to submit project proposals, with the aim of receiving EU funding.

ERC-2013-StG
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Funding Scheme

Funding scheme (or “Type of Action”) inside a programme with common features. It specifies: the scope of what is funded; the reimbursement rate; specific evaluation criteria to qualify for funding; and the use of simplified forms of costs like lump sums.

ERC-SG - ERC Starting Grant

Host institution

THE CHANCELLOR, MASTERS AND SCHOLARS OF THE UNIVERSITY OF OXFORD
EU contribution
€ 1 218 639,00
Address
WELLINGTON SQUARE UNIVERSITY OFFICES
OX1 2JD Oxford
United Kingdom

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Region
South East (England) Berkshire, Buckinghamshire and Oxfordshire Oxfordshire
Activity type
Higher or Secondary Education Establishments
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Total cost

The total costs incurred by this organisation to participate in the project, including direct and indirect costs. This amount is a subset of the overall project budget.

No data

Beneficiaries (1)

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