Coherent Price Systems and Uncertainty-Neutral Valuation
Copyright policy )Coherent Price Systems and Uncertainty-Neutral Valuation
This paper considers fundamental questions of arbitrage pricing that arises when the uncertainty model incorporates ambiguity about risk. This additional ambiguity motivates a new principle of risk- and ambiguity-neutral valuation as an extension of the paper by Ross (1976) (Ross, Stephen A. 1976. The arbitrage theory of capital asset pricing. Journal of Economic Theory 13: 341–60). In the spirit of Harrison and Kreps (1979) (Harrison, J. Michael, and David M. Kreps. 1979. Martingales and arbitrage in multiperiod securities markets. Journal of Economic Theory 20: 381–408), the paper establishes a micro-economic foundation of viability in which ambiguity-neutrality imposes a fair-pricing principle via symmetric multiple prior martingales. The resulting equivalent symmetric martingale measure set exists if the uncertain volatility in asset prices is driven by an ambiguous Brownian motion.
- Australian National University Australia
- Bielefeld University Germany
330, Arbitrage Pricing, sublinear expectation, symmetric martingales, nonlinear expectations and prices, 332, FOS: Economics and business, Insurance, C52, martingales, ambiguous volatility, HG8011-9999, Risiko, D52, mutually singular priors, G13, ddc:330, G14, asset pricing, viability of sublinear price systems, Volatilität, arbitrage, preference-free valuation, C62, Martingale, Erwartungstheorie, D46, uncertain volatility, equivalent symmetric martingale measures set (EsMM set), Girsanov for G-Brownian motion, Quantitative Finance - General Finance, General Finance (q-fin.GN), Theorie, jel: jel:D46, jel: jel:C52, jel: jel:G13
330, Arbitrage Pricing, sublinear expectation, symmetric martingales, nonlinear expectations and prices, 332, FOS: Economics and business, Insurance, C52, martingales, ambiguous volatility, HG8011-9999, Risiko, D52, mutually singular priors, G13, ddc:330, G14, asset pricing, viability of sublinear price systems, Volatilität, arbitrage, preference-free valuation, C62, Martingale, Erwartungstheorie, D46, uncertain volatility, equivalent symmetric martingale measures set (EsMM set), Girsanov for G-Brownian motion, Quantitative Finance - General Finance, General Finance (q-fin.GN), Theorie, jel: jel:D46, jel: jel:C52, jel: jel:G13
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