Related papers: Arbitrage from a Bayesian's Perspective

The relative arbitrage portfolio outperforms a benchmark portfolio over a given time-horizon with probability one. With market price of risk processes depending on the market portfolio and investors, this paper analyzes the multi-agent…

We study strategic information transmission in a hierarchical setting where information gets transmitted through a chain of agents up to a decision maker whose action is of importance to every agent. This situation could arise whenever an…

We introduce and formalize misalignment, a phenomenon of interactive environments perceived from an analyst's perspective where an agent holds beliefs about another agent's beliefs that do not correspond to the actual beliefs of the latter.…

We introduce the notions of Collective Arbitrage and of Collective Super-replication in a discrete-time setting where agents are investing in their markets and are allowed to cooperate through exchanges. We accordingly establish versions of…

Repeated game has long been the touchstone model for agents' long-run relationships. Previous results suggest that it is particularly difficult for a repeated game player to exert an autocratic control on the payoffs since they are jointly…

Consider a market of competing model providers selling query access to models with varying costs and capabilities. Customers submit problem instances and are willing to pay up to a budget for a verifiable solution. An arbitrageur…

It is shown that absence of arbitrage opportunity in financial markets is a particular case of existence of uncertainty in decision system. Absence of arbitrage opportunity is considered in the sense of the Arrow-Debreu model of financial…

Bayesian models of legal arguments generally aim to produce a single integrated model, combining each of the legal arguments under consideration. This combined approach implicitly assumes that variables and their relationships can be…

In this paper we provide a quantitative analysis to the concept of arbitrage, that allows to deal with model uncertainty without imposing the no-arbitrage condition. In markets that admit ``small arbitrage", we can still make sense of the…

We consider a popular model of microeconomics with countably many assets: the Arbitrage Pricing Model. We study the problem of optimal investment under an expected utility criterion and look for conditions ensuring the existence of optimal…

The notion that economies should normally be in equilibrium is by now well-established; equally well-established is that economies are almost never precisely in equilibrium. Using a very general formulation, we show that under dynamics that…

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 consider a population of Bayesian agents who share a common prior over some finite state space and each agent is exposed to some information about the state. We ask which distributions over empirical distributions of posteriors beliefs…

The ideal Bayesian agent reasons from a global probability model, but real agents are restricted to simplified models which they know to be adequate only in restricted circumstances. Very little formal theory has been developed to help…

Prediction markets aggregate agents' beliefs regarding a future event, where each agent is paid based on the accuracy of its reported belief when compared to the realized outcome. Agents may strategically manipulate the market (e.g., delay…

Bounded rationality is an important consideration stemming from the fact that agents often have limits on their processing abilities, making the assumption of perfect rationality inapplicable to many real tasks. We propose an…

Common sense suggests that when individuals explain why they believe something, we can arrive at more accurate conclusions than when they simply state what they believe. Yet, there is no known mechanism that provides incentives to elicit…

Statistical arbitrage methods identify mispricings in securities with the goal of building portfolios which are weakly correlated with the market. In pairs trading, an arbitrage opportunity is identified by observing relative price…

The classical discrete time model of proportional transaction costs relies on the assumption that a feasible portfolio process has solvent increments at each step. We extend this setting in two directions, allowing for convex transaction…

In the standard formulation of mechanism design, a key assumption is that the designer has reliable information and technology to determine a prior distribution on types of the agents. In the meanwhile, as pointed out by the Wilson's…