Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/43819
Authors: 
Vorbrink, Jörg
Year of Publication: 
2010
Series/Report no.: 
Working papers // Institute of Mathematical Economics 441
Abstract: 
We investigate financial markets under model risk caused by uncertain volatilities. For this purpose we consider a financial market that features volatility uncertainty. To have a mathematical consistent framework we use the notion of G-expectation and its corresponding G-Brownian motion recently introduced by Peng (2007). Our financial market consists of a riskless asset and a risky stock with price process modeled by a geometric G-Brownian motion. We adapt the notion of arbitrage to this more complex situation and consider stock price dynamics which exclude arbitrage opportunities. Due to volatility uncertainty the market is not complete any more. We establish the interval of no-arbitrage prices for general European contingent claims and deduce explicit results in a Markovian setting.
Subjects: 
pricing of contingent claims
incomplete markets
volatility uncertainty
G-Brownian motion stochastic calculus
JEL: 
G13
D81
C61
Document Type: 
Working Paper

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