We analyze the martingale selection problem of Rokhlin (2006) in a pointwise (robust) setting. We derive conditions for solvability of this problem and show how it is related to the classical no-arbitrage deliberations. We obtai
The no-arbitrage property is widely accepted to be a centerpiece of modern financial mathematics and could be considered to be a financial law applicable to a large class of (idealized) markets. The paper addresses the following basic question: can o
ne characterize the class of transformations that leave the law of no-arbitrage invariant? We provide a geometric formalization of this question in a non probabilistic setting of discrete time, the so-called trajectorial models. The paper then characterizes, in a local sense, the no-arbitrage symmetries and illustrates their meaning in a detailed example. Our context makes the result available to the stochastic setting as a special case
We design three continuous--time models in finite horizon of a commodity price, whose dynamics can be affected by the actions of a representative risk--neutral producer and a representative risk--neutral trader. Depending on the model, the producer c
an control the drift and/or the volatility of the price whereas the trader can at most affect the volatility. The producer can affect the volatility in two ways: either by randomizing her production rate or, as the trader, using other means such as spreading false information. Moreover, the producer contracts at time zero a fixed position in a European convex derivative with the trader. The trader can be price-taker, as in the first two models, or she can also affect the volatility of the commodity price, as in the third model. We solve all three models semi--explicitly and give closed--form expressions of the derivative price over a small time horizon, preventing arbitrage opportunities to arise. We find that when the trader is price-taker, the producer can always compensate the loss in expected production profit generated by an increase of volatility by a gain in the derivative position by driving the price at maturity to a suitable level. Finally, in case the trader is active, the model takes the form of a nonzero-sum linear-quadratic stochastic differential game and we find that when the production rate is already at its optimal stationary level, there is an amount of derivative position that makes both players better off when entering the game.
We consider non-concave and non-smooth random utility functions with do- main of definition equal to the non-negative half-line. We use a dynamic pro- gramming framework together with measurable selection arguments to establish both the no-arbitrage
condition characterization and the existence of an optimal portfolio in a (generically incomplete) discrete-time financial market model with finite time horizon. In contrast to the existing literature, we propose to consider a probability space which is not necessarily complete.
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 abstrac
t (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.
We study the Fundamental Theorem of Asset Pricing for a general financial market under Knightian Uncertainty. We adopt a functional analytic approach which require neither specific assumptions on the class of priors $mathcal{P}$ nor on the structure
of the state space. Several aspects of modeling under Knightian Uncertainty are considered and analyzed. We show the need for a suitable adaptation of the notion of No Free Lunch with Vanishing Risk and discuss its relation to the choice of an appropriate filtration. In an abstract setup, we show that absence of arbitrage is equivalent to the existence of emph{approximate} martingale measures sharing the same polar set of $mathcal{P}$. We then specialize the results to a discrete-time framework in order to obtain true martingale measures.