A Market Foundation for Conditional Asset Pricing

Simone Cerreia-Vioglio, Fabio Maccheroni and Massimo Marinacci

No 566, Working Papers from IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University

Abstract: Hansen and Richard (1987) prove a classic representation theorem for prices of payoffs in a conditional asset market. In this note we study the portfolio formation and portfolio pricing rules that ensure that the prices of payoffs generated by portfolios actually satisfy the assumptions of their representation theorem. In this way, we obtain a fundamental theorem of finance for conditional asset pricing.

Date: 2015
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