Coherent price systems and uncertainty-neutral valuation
AbstractWe 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Bielefeld University, Center for Mathematical Economics in its series Working Papers with number 464.
Length: 41 pages
Date of creation: Nov 2013
Date of revision:
mutually singular priors; uncertain volatility; sublinear expectation; viability of sublinear price systems; arbitrage; equivalent symmetric martingale measures set (EsMM set); symmetric martingales; Girsanov for G-Brownian motion;
Find related papers by JEL classification:
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- D46 - Microeconomics - - Market Structure and Pricing - - - Value Theory
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
- C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-04-03 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Aloisio Araujo & Alain Chateauneuf & José Faro, 2012. "Pricing rules and Arrow–Debreu ambiguous valuation," Economic Theory, Springer, vol. 49(1), pages 1-35, January.
- repec:fth:inseep:9513 is not listed on IDEAS
- Aliprantis, Charalambos D. & Tourky, Rabee & Yannelis, Nicholas C., 2001. "A Theory of Value with Non-linear Prices: Equilibrium Analysis beyond Vector Lattices," Journal of Economic Theory, Elsevier, vol. 100(1), pages 22-72, September.
- Kallal, Hedi & Jouini, Elyès, 1995. "Martingales and arbitrage in securities markets with transaction costs," Economics Papers from University Paris Dauphine 123456789/5630, Paris Dauphine University.
- Jouini Elyes & Kallal Hedi, 1995. "Martingales and Arbitrage in Securities Markets with Transaction Costs," Journal of Economic Theory, Elsevier, vol. 66(1), pages 178-197, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dr. Frederik Herzberg).
If references are entirely missing, you can add them using this form.