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Nonequilibrium Geometric No-Arbitrage Principle and Asset Pricing Theorem

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  • Wanxiao Tang
  • Peibiao Zhao
  • Luca Pancioni

Abstract

We find a novel and intimate correspondence in the present paper between the martingale and one-parameter transformation group and develop a nonequilibrium geometric no-arbitrage principle to a frictional financial market via this correspondence. Further, we achieve a fundamental pricing theorem via a geometric pricing transform (generator). Finally, we derive that the nonequilibrium geometric no-arbitrage is equivalent to NFLVR in a frictionless financial market. In addition, we apply the nonequilibrium geometric no-arbitrage condition to a frictional financial market. At the end of this paper, a numerical example confirms the effectiveness of the nonequilibrium geometric no-arbitrage condition.

Suggested Citation

  • Wanxiao Tang & Peibiao Zhao & Luca Pancioni, 2023. "Nonequilibrium Geometric No-Arbitrage Principle and Asset Pricing Theorem," Discrete Dynamics in Nature and Society, Hindawi, vol. 2023, pages 1-11, February.
    • Handle: RePEc:hin:jnddns:9077099
    DOI: 10.1155/2023/9077099
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