Coherent price systems and uncertainty-neutral valuation

Patrick Beißner

No 464, Center for Mathematical Economics Working Papers from Center for Mathematical Economics, Bielefeld University

Abstract: We consider fundamental questions of arbitrage pricing arising when the uncertainty model incorporates volatility uncertainty. The resulting ambiguity motivates a new principle of preference-free valuation. By establishing a microeconomic foundation of sublinear price systems, the principle of ambiguity-neutral valuation imposes the novel concept of equivalent symmetric martingale measures. Such measures exist when the asset price with uncertain volatility is driven by Peng's G-Brownian motion.

Pages: 41
Date: 2014-04-15
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https://pub.uni-bielefeld.de/download/2671731/2671732 First Version, 2013 (application/pdf)

Related works:
Working Paper: Coherent Price Systems and Uncertainty-Neutral Valuation (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:bie:wpaper:464

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