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Pointwise Arbitrage Pricing Theory in Discrete Time
Author(s) -
Matteo Burzoni,
Marco Frittelli,
Zhaoxu Hou,
Marco Maggis,
Jan Obłój
Publication year - 2019
Publication title -
mathematics of operations research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.619
H-Index - 83
eISSN - 1526-5471
pISSN - 0364-765X
DOI - 10.1287/moor.2018.0956
Subject(s) - pointwise , probabilistic logic , fundamental theorem of asset pricing , probability measure , arbitrage pricing theory , mathematical economics , discrete time and continuous time , capital asset pricing model , duality (order theory) , risk neutral measure , measure (data warehouse) , arbitrage , asset (computer security) , cover (algebra) , mathematics , mathematical optimization , econometrics , computer science , economics , finance , discrete mathematics , mathematical analysis , statistics , computer security , database , mechanical engineering , engineering
We develop a robust framework for pricing and hedging of derivative securities in discrete-time financial markets. We consider markets with both dynamically and statically traded assets and make minimal measurability assumptions. We obtain an abstract (pointwise) Fundamental Theorem of Asset Pricing and Pricing--Hedging Duality. Our results are general and in particular include so-called model independent results of Acciao et al. (2016), Burzoni et al. (2016) as well as seminal results of Dalang et al. (1990) in a classical probabilistic approach. Our analysis is scenario--based: a model specification is equivalent to a choice of scenarios to be considered. The choice can vary between all scenarios and the set of scenarios charged by a given probability measure. In this way, our framework interpolates between a model with universally acceptable broad assumptions and a model based on a specific probabilistic view of future asset dynamics.

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