Viability and Arbitrage under Knightian Uncertainty
We reconsider the microeconomic foundations of financial economics. Motivated by the importance of Knightian Uncertainty in markets, we present a model that does not carry any probabilistic structure ex ante, yet is based on a common order. We derive the fundamental equivalence of economic viability of asset prices and absence of arbitrage. We also obtain a modified version of the Fundamental Theorem of Asset Pricing using the notion of sublinear pricing measures. Different versions of the Efficient Market Hypothesis are related to the assumptions one is willing to impose on the common order.
Code (0)
등록된 구현이 없습니다.
Similar Papers 제목 키워드 기반
Arbitrage-free modeling under Knightian Uncertainty
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 $\ma…
Pricing Interest Rate Derivatives under Volatility Uncertainty
In this paper, we study the pricing of contracts in fixed income markets under volatility uncertainty in the sense of Knightian uncertainty or model uncertainty. The starting point is an arbitrage-free bond market under …
Cursed Equilibria and Knightian Uncertainty in a Trading Game
We introduce a novel equilibrium concept that incorporates Knightian uncertainty into the cursed equilibrium (Eyster and Rabin, 2005). This concept is then applied to a two-player game in which agents can engage in trade…
An ontological investigation of unimaginable events
We show that, under mild assumptions, some unimaginable events - which we refer to as Black Swan events - must necessarily occur. It follows as a corollary of our theorem that any computational model of decision-making u…
Decision MakingDecision Making Under UncertaintyArbitrage concepts under trading restrictions in discrete-time financial markets
In a discrete-time setting, we study arbitrage concepts in the presence of convex trading constraints. We show that solvability of portfolio optimization problems is equivalent to absence of arbitrage of the first kind, …
Portfolio Optimization