Asset pricing in an imperfect world

DOI10.1007/S00199-016-0999-7zbMATH Open1398.91285arXiv1410.6408OpenAlexW3098999640MaRDI QIDQ683829FDOQ683829

Authors: Gianluca Cassese 

Publication date: 9 February 2018

Published in: Economic Theory (Search for Journal in Brave)

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.

Full work available at URL: https://arxiv.org/abs/1410.6408

Recommendations

• scientific article; zbMATH DE number 1987695
• Asset pricing with incomplete information and fat tails
• An approach to asset pricing under incomplete and diverse perceptions
• Asset pricing under asymmetric information
• Asset pricing with dynamically inconsistent agents
• Asset Pricing in Economies with Frictions
• Asset pricing in a pure exchange economy with heterogeneous investors
• scientific article; zbMATH DE number 19465
• Asset price anomalies under bounded rationality

zbMATH Keywords

coherencetransaction costsfundamental theorem of asset pricingbubblesarbitragebid/ask spreadsrisk-neutral probability

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20)

Cites Work

• Measure theory. Vol. I and II
• Martingales and arbitrage in multiperiod securities markets
• A general version of the fundamental theorem of asset pricing
• Title not available (Why is that?)
• CHOQUET PRICING FOR FINANCIAL MARKETS WITH FRICTIONS
• Put-call parity and market frictions
• The Dalang-Morton-Willinger theorem under cone constraints.
• Martingales and arbitage in securities markets with transaction costs
• Financial economics without probabilistic prior assumptions
• ASSET PRICING WITH NO EXOGENOUS PROBABILITY MEASURE
• Title not available (Why is that?)
• The Fundamental Theorem of Asset Pricing under Proportional Transaction Costs in Finite Discrete Time
• Asset Pricing in Economies with Frictions
• The Harrison-Pliska arbitrage pricing theorem under transaction costs
• On general minimax theorems
• Knightian decision theory. I.
• Cash subadditive risk measures and interest rate ambiguity
• DERIVATIVE ASSET PRICING WITH TRANSACTION COSTS¹
• Spanning, valuation and options
• Continuous-time trading and the emergence of probability
• Arbitrage and equilibrium in economies with infinitely many commodities
• Equilibrium interest rate and liquidity premium with transaction costs
• Local martingales, bubbles and option prices
• Objective and subjective rationality in a multiple prior model
• Rational asset pricing bubbles and portfolio constraints
• Rational equilibrium asset-pricing bubbles in continuous trading models
• Bubbles and Charges
• Sure wins, separating probabilities and the representation of linear functionals
• Bubbles as payoffs at infinity
• OPTIMAL NUMERAIRES FOR RISK MEASURES
• Financial markets with endogenous transaction costs
• Arbitrage and deflators in illiquid markets
• Arbitrage and investment opportunities
• The fundamental theorem of asset pricing in the presence of bid-ask and interest rate spreads
• Financial models with defaultable numéraires
• No-arbitrage in discrete-time markets with proportional transaction costs and general information structure

Cited In (8)

• Pricing and valuation under the real-world measure
• Put-call parities, absence of arbitrage opportunities, and nonlinear pricing rules
• CHOQUET INSURANCE PRICING: A CAVEAT
• Asset Pricing Specification Errors and Performance Evaluation
• ASSET PRICING WITH NO EXOGENOUS PROBABILITY MEASURE
• Complete and competitive financial markets in a complex world
• Title not available (Why is that?)
• Nonparametric estimates of option prices and related quantities

This page was built for publication: Asset pricing in an imperfect world

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q683829)