Year: 2026
Type: preprint
Abstract: This paper develops a robust hedging valuation adjustment (HVA) measure for dynamic hedging. Simulated rebalancing and maturity-unwind trades generate a loss distribution for each no-trade-band rule, and we define robust HVA as the worst-case expected loss over a relative-entropy neighborhood of that distribution. Because band width affects turnover, the same relative-entropy radius applied to different bands can imply different levels of demand-liquidity stress. We distinguish a fixed-radius convention from a fixed benchmark-stress convention and show that wider no-trade bands lower rebalancing costs but raise hedge-error risk.
Source: arXiv (Cornell University)
Author: Sakuma, Takayuki
Institution: Soka University
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W7166137465
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