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Coherent Price Systems and Uncertainty-Neutral Valuation

Patrick Beißner ()

Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order from Verein für Socialpolitik / German Economic Association

Abstract: We consider fundamental questions of arbitrage pricing arising when the uncertainty model incorporates volatility uncertainty. With a standard probabilistic model, essential equivalence between the absence of arbitrage and the existence of an equivalent martingale measure is a folk theorem, see Harrison and Kreps (1979). We establish a microeconomic foundation of sublinear price systems and present an extension result. In this context we introduce a prior dependent notion of marketed spaces and viable price systems. We associate this extension with a canonically altered concept of equivalent symmetric martingale measure sets, in a dynamic trading framework under absence of prior depending arbitrage. We prove the existence of such sets when volatility uncertainty is modeled by a stochastic di erential equation, driven by Peng's G-Brownian motion.

JEL-codes: G13 D46 C52 (search for similar items in EconPapers)
Date: 2013
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Working Paper: Coherent price systems and uncertainty-neutral valuation (2014) Downloads
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