Dynamic bid-ask pricing under Dempster-Shafer uncertainty
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Publication:6170042
The paper introduces time-homogeneous Markov multiplicative processes under Dempster-Shafer uncertainty (namely, DS-multiplicative binomial processes) and defines the induced conditional Choquet expectation operator and considers a market composed by a frictionless risk-free bond and a non-dividend paying stock with frictions, and proves an analog of the classical theorem of change of measure relying on the notion of equivalent one-step Choquet martingale belief function. It shows that the dynamic lower pricing rule though not consistent with the classical one-step no-arbitrage condition, is consistent with a generalized one-step no-arbitrage condition that relies on the notion of partially resolving uncertainty due to Jaffray. The paper is well-organized.
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Cited in
(8)- G-Doob-Meyer decomposition and its applications in bid-ask pricing for derivatives under Knightian uncertainty
- CHOQUET PRICING FOR FINANCIAL MARKETS WITH FRICTIONS
- Put-call parities, absence of arbitrage opportunities, and nonlinear pricing rules
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- De Finetti's legacy in dealing with uncertainty: towards finance, artificial intelligence and beyond
- Asking price and price discounts: the strategy of selling an asset under price uncertainty
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