A Note on the Fundamental Theorem of Asset Pricing under Model Uncertainty

Erhan Bayraktar, Yuchong Zhang and Zhou Zhou
Additional contact information
Yuchong Zhang: Department of Mathematics, University of Michigan, 530 Church Street, Ann Arbor, MI 48109, USA
Zhou Zhou: Department of Mathematics, University of Michigan, 530 Church Street, Ann Arbor, MI 48109, USA

Risks, 2014, vol. 2, issue 4, 1-9

Abstract: We show that the recent results on the Fundamental Theorem of Asset Pricing and the super-hedging theorem in the context of model uncertainty can be extended to the case in which the options available for static hedging (hedging options) are quoted with bid-ask spreads. In this set-up, we need to work with the notion of robust no-arbitrage which turns out to be equivalent to no-arbitrage under the additional assumption that hedging options with non-zero spread are non-redundant. A key result is the closedness of the set of attainable claims, which requires a new proof in our setting.

Keywords: Model uncertainty; bid-ask prices for options; semi-static hedging; non-dominated collection of probability measures; Fundamental Theorem of Asset Pricing; super-hedging; robust no-arbitrage; non-redundant options (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Working Paper: A note on the Fundamental Theorem of Asset Pricing under model uncertainty (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:gam:jrisks:v:2:y:2014:i:4:p:425-433:d:41048

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