Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/257936 
Year of Publication: 
2019
Citation: 
[Journal:] Risks [ISSN:] 2227-9091 [Volume:] 7 [Issue:] 3 [Article No.:] 98 [Publisher:] MDPI [Place:] Basel [Year:] 2019 [Pages:] 1-18
Publisher: 
MDPI, Basel
Abstract: 
This paper considers fundamental questions of arbitrage pricing that arises when the uncertainty model incorporates ambiguity about risk. This additional ambiguity motivates a new principle of risk- and ambiguity-neutral valuation as an extension of the paper by Ross (1976) (Ross, Stephen A. 1976. The arbitrage theory of capital asset pricing. Journal of Economic Theory 13: 341-60). In the spirit of Harrison and Kreps (1979) (Harrison, J. Michael, and David M. Kreps. 1979. Martingales and arbitrage in multiperiod securities markets. Journal of Economic Theory 20: 381-408), the paper establishes a micro-economic foundation of viability in which ambiguity-neutrality imposes a fair-pricing principle via symmetric multiple prior martingales. The resulting equivalent symmetric martingale measure set exists if the uncertain volatility in asset prices is driven by an ambiguous Brownian motion.
Subjects: 
ambiguous volatility
arbitrage
asset pricing
martingales
nonlinear expectations and prices
preference-free valuation
Persistent Identifier of the first edition: 
Creative Commons License: 
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Document Type: 
Article
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