Continuous-time trading and the emergence of probability
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Publication:693028
DOI10.1007/S00780-012-0180-5zbMATH Open1262.91163arXiv0904.4364OpenAlexW2779352156WikidataQ62046685 ScholiaQ62046685MaRDI QIDQ693028FDOQ693028
Authors: Vladimir Vovk 
Publication date: 7 December 2012
Published in: Finance and Stochastics (Search for Journal in Brave)
Abstract: This paper establishes a non-stochastic analogue of the celebrated result by Dubins and Schwarz about reduction of continuous martingales to Brownian motion via time change. We consider an idealized financial security with continuous price path, without making any stochastic assumptions. It is shown that typical price paths possess quadratic variation, where "typical" is understood in the following game-theoretic sense: there exists a trading strategy that earns infinite capital without risking more than one monetary unit if the process of quadratic variation does not exist. Replacing time by the quadratic variation process, we show that the price path becomes Brownian motion. This is essentially the same conclusion as in the Dubins-Schwarz result, except that the probabilities (constituting the Wiener measure) emerge instead of being postulated. We also give an elegant statement, inspired by Peter McCullagh's unpublished work, of this result in terms of game-theoretic probability theory.
Full work available at URL: https://arxiv.org/abs/0904.4364
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continuous timeincomplete marketsgame-theoretic probabilitycontinuous price pathsemergence of~probability
Sample path properties (60G17) Martingales with continuous parameter (60G44) Actuarial science and mathematical finance (91G99) Foundations of stochastic processes (60G05)
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