Asset Pricing in an Imperfect World
Mathematical Finance
2016-09-12 v1 Pricing of Securities
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.
Keywords
Cite
@article{arxiv.1410.6408,
title = {Asset Pricing in an Imperfect World},
author = {Gianluca Cassese},
journal= {arXiv preprint arXiv:1410.6408},
year = {2016}
}
Comments
arXiv admin note: substantial text overlap with arXiv:1406.0412