Related papers: Arbitrage-Free Pricing Before and Beyond Probabili…
We consider arbitrage free valuation of European options in Black-Scholes and Merton markets, where the general structure of the market is known, however the specific parameters are not known. In order to reflect this subjective uncertainty…
We propose a probabilistic framework for pricing derivatives, which acknowledges that information and beliefs are subjective. Market prices can be translated into implied probabilities. In particular, futures imply returns for these implied…
This paper proposes two approaches that quantify the exact relationship among the viability, the absence of arbitrage, and/or the existence of the num\'eraire portfolio under minimal assumptions and for general continuous-time market…
In stochastic portfolio theory, a relative arbitrage is an equity portfolio which is guaranteed to outperform a benchmark portfolio over a finite horizon. When the market is diverse and sufficiently volatile, and the benchmark is the market…
We consider a class of generalized capital asset pricing models in continuous time with a finite number of agents and tradable securities. The securities may not be sufficient to span all sources of uncertainty. If the agents have…
Statistical arbitrage exploits temporal price differences between similar assets. We develop a unifying conceptual framework for statistical arbitrage and a novel data driven solution. First, we construct arbitrage portfolios of similar…
We investigate financial markets under model risk caused by uncertain volatilities. For this purpose we consider a financial market that features volatility uncertainty. To have a mathematical consistent framework we use the notion of…
This paper develops a model-free framework for static fixed-income pricing and the replication of liability cash flows. We show that the absence of static arbitrage across a universe of fixed-income instruments is equivalent to the…
We show how to price and replicate a variety of barrier-style claims written on the $\log$ price $X$ and quadratic variation $\langle X \rangle$ of a risky asset. Our framework assumes no arbitrage, frictionless markets and zero interest…
We propose a continuous-time model of trading with heterogeneous beliefs. Risk-neutral agents face quadratic costs-of-carry on positions and thus their marginal valuations decrease with the size of their position, as it would be the case…
No-arbitrage asset pricing characterizes valuation through the existence of equivalent martingale measures relative to a filtration and a class of admissible trading strategies. In practice, pricing is performed across multiple asset…
Under short sales prohibitions, no free lunch with vanishing risk (NFLVR-S) is known to be equivalent to the existence of an equivalent supermartingale measure for the price processes (Pulido [22]). For two given price processes, we…
In this paper, we study the martingale property for a Scott correlated stochastic volatility model, when the correlation coefficient between the Brownian motion driving the volatility and the one driving the asset price process is…
In this study we prove the existence of statistical arbitrage opportunities in the Black-Scholes framework by considering trading strategies that consists of borrowing from the risk free rate and taking a long position in the stock until it…
In a stochastic volatility framework, we find a general pricing equation for the class of payoffs depending on the terminal value of a market asset and its final quadratic variation. This allows a pricing tool for European-style claims…
We derive deterministic criteria for the existence and non-existence of equivalent (local) martingale measures for financial markets driven by multi-dimensional time-inhomogeneous diffusions. Our conditions can be used to construct…
If prices of assets traded in a financial market are determined by non-linear pricing rules, different versions of the Call-Put Parity have been considered. We show that, under monotonicity, parities between call and put options and…
This paper considers a sequence of discrete-time random walk markets with a safe and a single risky investment opportunity, and gives conditions for the existence of arbitrages or free lunches with vanishing risk, of the form of waiting to…
We reconsider the problem of option pricing using historical probability distributions. We first discuss how the risk-minimisation scheme proposed recently is an adequate starting point under the realistic assumption that price increments…
We provide a general framework for no-arbitrage concepts in topological vector lattices, which covers many of the well-known no-arbitrage concepts as particular cases. The main structural condition we impose is that the outcomes of trading…