An Interval of No-Arbitrage Prices in Financial Markets with Volatility Uncertainty

Hanlei Hu, Zheng Yin and Weipeng Yuan

Mathematical Problems in Engineering, 2017, vol. 2017, 1-11

Abstract:

In financial markets with volatility uncertainty, we assume that their risks are caused by uncertain volatilities and their assets are effectively allocated in the risk-free asset and a risky stock, whose price process is supposed to follow a geometric -Brownian motion rather than a classical Brownian motion. The concept of arbitrage is used to deal with this complex situation and we consider stock price dynamics with no-arbitrage opportunities. For general European contingent claims, we deduce the interval of no-arbitrage price and the clear results are derived in the Markovian case.

Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:hin:jnlmpe:5769205

DOI: 10.1155/2017/5769205

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