Model and parameter uncertainties are ubiquitous whenever a parametric model is selected to value a derivative instrument. Combining the Monte Carlo method and the Smolyak interpolation algorithm, this paper proposes an accurate and efficient numerical method to quantify the uncertainty embedded...

Probability statements about future evolutions of financial and actuarial risks are expressed in terms of the ‘real-world' probability measure P, whereas in an arbitrage-free environment, the prices of these traded risks can be expressed in terms of an equivalent martingale measure Q. The...

In arbitrage-free but incomplete markets, the equivalent martingale measure Q for pricing traded assets is not uniquely determined. A possible approach when it comes to choosing a particular pricing measure is to consider the one that is 'closest' to the physical probability measure P, where...