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On robust fundamental theorems of asset pricing in discrete time

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  • Huy N. Chau

Abstract

This paper is devoted to a study of robust fundamental theorems of asset pricing in discrete time and finite horizon settings. Uncertainty is modelled by a (possibly uncountable) family of price processes on the same probability space. Our technical assumption is the continuity of the price processes with respect to uncertain parameters. In this setting, we introduce a new topological framework which allows us to use the classical arguments in arbitrage pricing theory involving $L^p$ spaces, the Hahn-Banach separation theorem and other tools from functional analysis. The first result is the equivalence of a ``no robust arbitrage" condition and the existence of a new ``robust pricing system". The second result shows superhedging dualities and the existence of superhedging strategies without restrictive conditions on payoff functions, unlike other related studies. The third result discusses completeness in the present robust setting. When other options are available for static trading, we could reduce the set of robust pricing systems and hence the superhedging prices.

Suggested Citation

  • Huy N. Chau, 2020. "On robust fundamental theorems of asset pricing in discrete time," Papers 2007.02553, arXiv.org, revised Apr 2024.
    • Handle: RePEc:arx:papers:2007.02553
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    References listed on IDEAS

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    Cited by:

    1. Huy N. Chau & Masaaki Fukasawa & Miklos Rasonyi, 2021. "Super-replication with transaction costs under model uncertainty for continuous processes," Papers 2102.02298, arXiv.org.

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