Coherent price systems and uncertainty-neutral valuation

Abstract

Beißner P. Coherent price systems and uncertainty-neutral valuation. Working Papers. Center for Mathematical Economics. Vol 464. Bielefeld: Center for Mathematical Economics; 2013.We consider fundamental questions of arbitrage pricing arising when the uncertainty model incorporates volatility uncertainty. The resulting ambiguity motivates a new principle of preference-free valuation. By establishing a microeconomic foundation of sublinear price systems, the principle of ambiguity-neutral valuation imposes the novel concept of equivalent symmetric martingale measures. Such measures exist when the asset price with uncertain volatility is driven by Peng's G-Brownian motion