Model risk and discretisation of locally risk-minimising strategies

Discretisation of FBSDEs driven by càdlàg martingales

“…As far as further investigations are concerned, applications of our study to the problem of hedging in finance are considered in the paper by Sun et al [23]. In this latter paper, quadratic hedging strategies in incomplete markets and their related FBSDE of the form (1.1) are considered.…”

“…For numerical applications of the discretisation scheme, we refer to Sun et al [23], where the authors study the numerical computation of locally risk-minimizing strategies for vanilla, Asian and spread options and use a regression-based method as in Longstaff and Schwarz [15] to simulate the conditional expectations appearing in the discretisation scheme. We refer to Kohler [12] for an overview of regression-based approaches to compute numerically conditional expectations arising from American options.…”

“…We note that in a paper by Sun et al [23], the scheme (3.4) is applied to numerically compute locally risk-minimizing strategies in incomplete markets in finance and insurance. The authors model the price process by a jump-diffusion and focus mainly on European, Asian, and spread options.…”

Risk Control for Synchronizing a New Economic Model

“…where notation f shows the normalized value of f . According to Equation (12), the relation between risk and reliability of each controller can be written as…”

“…In addition to reliability analysis, risk analysis and management are two important subjects with numerous applications in systems engineering [10][11][12]. The operational risk of a controller for a system can be defined in various ways depending on its specific application.…”