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Choquet Pricing For Financial Markets With Frictions

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  • A. Chateauneuf
  • R. Kast
  • A. Lapied

Abstract

In markets where dealers play a central role, bid-ask spreads inhibit asset valuation as defined by the formation cost of a replicating portfolio. We introduce a nonlinear valuation formula similar to the usual expectation with respect to the risk-adjusted probability measure. This formula expresses the asset's selling and buying prices set by dealers as the Choquet integrals of their random payoffs We investigate several price puzzles: the violation of the put-call parity and the fact that the components of a security can sell at a premium to the underlying security (primes and scores). Copyright 1996 Blackwell Publishers.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-9965.1996.tb00119.x
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Bibliographic Info

Article provided by Wiley Blackwell in its journal Mathematical Finance.

Volume (Year): 6 (1996)
Issue (Month): 3 ()
Pages: 323-330

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Handle: RePEc:bla:mathfi:v:6:y:1996:i:3:p:323-330

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0960-1627

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