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Coherent price systems and uncertainty-neutral valuation

Author

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  • Beißner, Patrick

    (Center for Mathematical Economics, Bielefeld University)

Abstract

We 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.

Suggested Citation

  • Beißner, Patrick, 2014. "Coherent price systems and uncertainty-neutral valuation," Center for Mathematical Economics Working Papers 464, Center for Mathematical Economics, Bielefeld University.
  • Handle: RePEc:bie:wpaper:464
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    File URL: https://pub.uni-bielefeld.de/download/2671731/2671732
    File Function: First Version, 2013
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    References listed on IDEAS

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    4. Cerreia-Vioglio, Simone & Maccheroni, Fabio & Marinacci, Massimo & Montrucchio, Luigi, 2013. "Ambiguity and robust statistics," Journal of Economic Theory, Elsevier, vol. 148(3), pages 974-1049.
      • Simone Cerreia-Vioglio & Fabio Maccheroni & Massimo Marinacci & Luigi Montrucchio, 2011. "Ambiguity and Robust Statistics," Working Papers 382, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
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    6. Aloisio Araujo & Alain Chateauneuf & José Faro, 2012. "Pricing rules and Arrow–Debreu ambiguous valuation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 49(1), pages 1-35, January.
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    13. 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.
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    Cited by:

    1. Alexander Alvarez & Sebastian E. Ferrando, 2016. "Trajectory-Based Models, Arbitrage And Continuity," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 19(03), pages 1-34, May.
    2. Vorbrink, Jörg, 2014. "Financial markets with volatility uncertainty," Journal of Mathematical Economics, Elsevier, vol. 53(C), pages 64-78.

    More about this item

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • D46 - Microeconomics - - Market Structure, Pricing, and Design - - - Value Theory
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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