Related papers: Uncertainty and absence of arbitrage opportunity
We consider the classical multi-asset Merton investment problem under drift uncertainty, i.e. the asset price dynamics are given by geometric Brownian motions with constant but unknown drift coefficients. The investor assumes a prior drift…
This paper does not suppose a priori that the evolution of the price of a financial asset is a semimartingale. Since possible strategies of investors are self-financing, previous prices are forced to be finite quadratic variation processes.…
Consider a financial market with nonnegative semimartingales which does not need to have a num\'{e}raire. We are interested in the absence of arbitrage in the sense that no self-financing portfolio gives rise to arbitrage opportunities,…
We obtain a constructive criterion for robust no-arbitrage in discrete-time market models with transaction costs. This criterion is expressed in terms of the supports of the regular conditional upper distributions of the solvency cones. We…
We consider the problem of rational uncertainty about unproven mathematical statements, remarked on by G\"odel and others. Using Bayesian-inspired arguments we build a normative model of fair bets under deductive uncertainty which draws…
Given a stock price process, we analyse the potential of arbitrage by insiders in a context of short-selling prohibitions. We introduce the notion of minimal supermartingale measure, and we analyse its properties in connection to the…
A financial market is called "diverse" if no single stock is ever allowed to dominate the entire market in terms of relative capitalization. In the context of the standard Ito-process model initiated by Samuelson (1965) we formulate this…
The recent "correlation breakdown" in the modeling of credit default swaps, in which model correlations had to exceed 100% in order to reproduce market prices of supersenior tranches, is analyzed and argued to be a fundamental market…
In many common interactive scenarios, participants lack information about other participants, and specifically about the preferences of other participants. In this work, we model an extreme case of incomplete information, which we term…
We consider a financial market in discrete time and study pricing and hedging conditional on the information available up to an arbitrary point in time. In this conditional framework, we determine the structure of arbitrage-free prices.…
In games with incomplete and ambiguous information, rational behavior depends not only on fundamental ambiguity (ambiguity about states) but also on strategic ambiguity (ambiguity about others' actions), which further induces hierarchies of…
We consider a one-period market model composed by a risk-free asset and a risky asset with $n$ possible future values (namely, a $n$-nomial market model). We characterize the lower envelope of the class of equivalent martingale measures in…
The large majority of risk-sharing transactions involve few agents, each of whom can heavily influence the structure and the prices of securities. This paper proposes a game where agents' strategic sets consist of all possible sharing…
The existence of time-lagged cross-correlations between the returns of a pair of assets, which is known as the lead-lag relationship, is a well-known stylized fact in financial econometrics. Recently some continuous-time models have been…
In this article, we address the question of how non-knowledge about future events that influence economic agents' decisions in choice settings has been formally represented in economic theory up to date. To position our discussion within…
We introduce a solution concept for extensive-form games of incomplete information in which players need not assign likelihoods to what they do not know about the game. This is embedded in a model in which players can hold multiple priors.…
We discuss the objectives of automation equipped with non-trivial decision making, or creating artificial intelligence, in the financial markets and provide a possible alternative. Intelligence might be an unintended consequence of…
In [2] the notion of stickiness for stochastic processes was introduced. It was also shown that stickiness implies absense of arbitrage in a market with proportional transaction costs. In this paper, we investigate the notion of stickiness…
With model uncertainty characterized by a convex, possibly non-dominated set of probability measures, the agent minimizes the cost of hedging a path dependent contingent claim with given expected success ratio, in a discrete-time,…
We give characterizations of asymptotic arbitrage of the first and second kind and of strong asymptotic arbitrage for large financial markets with small proportional transaction costs $\la_n$ on market $n$ in terms of contiguity properties…