Robust hedging of barrier options with beliefs on implied Volatility

We develop an abstract robust modelling framework accommodating as inputs market priced of options and modelling beliefs formulated in terms of pathspace restrictions. This naturally allows us to talk about robust market models. As an example we consider pricing and hedging of barrier options with beliefs about future levels of implied volatilities. We construct local volatility models which satisfy such constraints and use them to combine static and robust hedging methods. We discuss asymptotic convergence when beliefs become stronger (model specific) or weaker (model independent). Joint work with Sergey Nadtochiy.Non UBCUnreviewedAuthor affiliation: University of OxfordFacult