# Hedging with Small Uncertainty Aversion

arXiv: https://arxiv.org/abs/1605.06429 · HTML: https://mlsanity.com/paper/1605.06429/

## Key facts

- Cited by 1 papers in the map (data through 14 Oct 2026).
- First posted on arXiv 20 May 2016.

## Built on by (most cited first, 1 of 1)

- [Robust Control under Stationary Ambiguity](https://mlsanity.com/paper/2608.04832/) (2026)

## Abstract (arXiv)

We study the pricing and hedging of derivative securities with uncertainty about the volatility of the underlying asset. Rather than taking all models from a prespecified class equally seriously, we penalise less plausible ones based on their "distance" to a reference local volatility model. In the limit for small uncertainty aversion, this leads to explicit formulas for prices and hedging strategies in terms of the security's cash gamma.