Rough paths in idealized financial markets

DOI10.1007/S10986-011-9125-5zbMATH Open1227.91040arXiv1005.0279OpenAlexW3101836082WikidataQ62046692 ScholiaQ62046692MaRDI QIDQ647162FDOQ647162

Authors: Vladimir Vovk 

Publication date: 1 December 2011

Published in: Lithuanian Mathematical Journal (Search for Journal in Brave)

Abstract: This paper considers possible price paths of a financial security in an idealized market. Its main result is that the variation index of typical price paths is at most 2, in this sense, typical price paths are not rougher than typical paths of Brownian motion. We do not make any stochastic assumptions and only assume that the price path is positive and right-continuous. The qualification "typical" means that there is a trading strategy (constructed explicitly in the proof) that risks only one monetary unit but brings infinite capital when the variation index of the realized price path exceeds 2. The paper also reviews some known results for continuous price paths and lists several open problems.

Full work available at URL: https://arxiv.org/abs/1005.0279

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zbMATH Keywords

continuous timeincomplete marketsgame-theoretic probabilitydiscontinuous price pathsvariation index

Mathematics Subject Classification ID

Auctions, bargaining, bidding and selling, and other market models (91B26) Sample path properties (60G17) Financial applications of other theories (91G80)

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Cited In (16)

• Approximations and asymptotics of upper hedging prices in multinomial models
• Continuous-time trading and the emergence of probability
• How Rough Path Lifts Affect Expected Return and Volatility: A Rough Model under Transaction Cost
• A càdlàg rough path foundation for robust finance
• BDG inequalities and their applications for model-free continuous price paths with instant enforcement
• Sequential optimizing strategy in multi-dimensional bounded forecasting games
• Continuous-time trading and the emergence of volatility
• Itô-Föllmer calculus in Banach spaces. I: The Itô formula
• On the quadratic variation of the model-free price paths with jumps
• Pathwise no-arbitrage in a class of delta hedging strategies
• Pathwise superreplication via Vovk's outer measure
• Examples of Itô Càdlàg rough paths
• The role of measurability in game-theoretic probability
• Itô calculus without probability in idealized financial markets
• Martingale optimal transport duality
• A new inequality for the Riemann-Stieltjes integrals driven by irregular signals in Banach spaces

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