Related papers: Election Predictions as Martingales: An Arbitrage …
Recent empirical studies suggest that the volatility of an underlying price process may have correlations that decay slowly under certain market conditions. In this paper, the volatility is modeled as a stationary process with long-range…
The paper develops general, discrete, non-probabilistic market models and minmax price bounds leading to price intervals for European options. The approach provides the trajectory based analogue of martingale-like properties as well as a…
This papers addresses the stock option pricing problem in a continuous time market model where there are two stochastic tradable assets, and one of them is selected as a num\'eraire. It is shown that the presence of arbitrarily small…
We consider fundamental questions of arbitrage pricing arising when the uncertainty model is given by a set of possible mutually singular probability measures. With a single probability model, essential equivalence between the absence of…
In this work, we propose an algorithm to price American options by directly solving the dual minimization problem introduced by Rogers. Our approach relies on approximating the set of uniformly square integrable martingales by a finite…
In a model independent discrete time financial market, we discuss the richness of the family of martingale measures in relation to different notions of Arbitrage, generated by a class $\mathcal{S}$ of significant sets, which we call…
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 construct a binary market model with memory that approximates a continuous-time market model driven by a Gaussian process equivalent to Brownian motion. We give a sufficient conditions for the binary market to be arbitrage-free. In a…
We derive behavioral finance option pricing formulas consistent with the rational dynamic asset pricing theory. In the existing behavioral finance option pricing formulas, the price process of the representative agent is not a…
Option price data are used as inputs for model calibration, risk-neutral density estimation and many other financial applications. The presence of arbitrage in option price data can lead to poor performance or even failure of these tasks,…
Motivation for this paper is to understand the impact of information on asset price bubbles and perceived arbitrage opportunities. This boils down to study optional projections of $\mathbb{G}$-adapted strict local martingales into a smaller…
The purpose of this work is to explore the role that arbitrage opportunities play in pricing financial derivatives. We use a non-equilibrium model to set up a stochastic portfolio, and for the random arbitrage return, we choose a stationary…
In this paper an arbitrage strategy is constructed for the modified Black-Scholes model driven by fractional Brownian motion or by a time changed fractional Brownian motion, when the volatility is stochastic. This latter property allows the…
Taleb (2018) claimed a novel approach to evaluating the quality of probabilistic election forecasts via no-arbitrage pricing techniques and argued that popular forecasts of the 2016 U.S. Presidential election had violated arbitrage…
The binary information collects all those events that may or may not occur. With this kind of variables, a large amount of information can be captured, in particular, about financial assets and their future trends. In our paper, we assume…
Consider the sum $Y=B+B(H)$ of a Brownian motion $B$ and an independent fractional Brownian motion $B(H)$ with Hurst parameter $H\in(0,1)$. Even though $B(H)$ is not a semimartingale, it was shown in [\textit{Bernoulli} \textbf{7} (2001)…
This paper introduces a martingale that characterizes two properties of evolving forecast distributions. Ideal forecasts of a future event behave as martingales, sequen- tially updating the forecast to leverage the available information as…
We consider statistical estimation of superhedging prices using historical stock returns in a frictionless market with d traded assets. We introduce a plugin estimator based on empirical measures and show it is consistent but lacks suitable…
In the framework of bilateral Gamma stock models we seek for adequate option pricing measures, which have an economic interpretation and allow numerical calculations of option prices. Our investigations encompass Esscher transforms, minimal…
This paper builds a model of interactive belief hierarchies to derive the conditions under which judging an arbitrage opportunity requires Bayesian market participants to exercise their higher-order beliefs. As a Bayesian, an agent must…