history-dependent component to prices of risk. …

We study the pricing and hedging of derivative securities with uncertainty about the volatility of the underlying asset … "distance" to a reference local volatility model. In the limit for small uncertainty aversion, this leads to explicit formulas …

The present paper considers a class of general equilibrium economics when the primitive uncertainty model features … uncertainty about continuous-time volatility. This requires a set of mutually singular priors, which do not share the same null … agents in the economy are heterogeneous in their preference for uncertainty. Each utility functional is a variational type …