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Asset Pricing in an Imperfect World

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  • Gianluca Cassese

Abstract

In a model with no given probability measure, we consider asset pricing in the presence of frictions and other imperfections and characterize the property of coherent pricing, a notion related to (but much weaker than) the no arbitrage property. We show that prices are coherent if and only if the set of pricing measures is non empty, i.e. if pricing by expectation is possible. We then obtain a decomposition of coherent prices highlighting the role of bubbles. Eventually we show that under very weak conditions the coherent pricing of options allows for a very clear representation which allows, as in Breeden and Litzenberger, to extract the implied probability.

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  • Gianluca Cassese, 2014. "Asset Pricing in an Imperfect World," Papers 1410.6408, arXiv.org.
  • Handle: RePEc:arx:papers:1410.6408
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    Cited by:

    1. Gianluca Cassese, 2015. "Non Parametric Estimates of Option Prices Using Superhedging," Papers 1502.03978, arXiv.org.

    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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