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Choquet Pricing For Financial Markets With Frictions

Author

Listed:
  • 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.

Suggested Citation

  • A. Chateauneuf & R. Kast & A. Lapied, 1996. "Choquet Pricing For Financial Markets With Frictions," Mathematical Finance, Wiley Blackwell, vol. 6(3), pages 323-330.
  • Handle: RePEc:bla:mathfi:v:6:y:1996:i:3:p:323-330
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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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