Wednesday, May 4, 2022 - 16:00 in V10-122
Fundamental theorem of asset pricing with acceptable risk in markets with frictions
A talk in the Mathematical finance / Insurance mathematics series by
Cosimo Munari from University of Zürich
| Abstract: |
We study the range of prices at which a rational agent should contemplate transacting a financial contract outside a given securities market. Trading is subject to nonproportional transaction costs and portfolio constraints and full replication by way of market instruments is not always possible. Rationality is defined in terms of consistency with market prices and acceptable risk thresholds. We obtain a direct and a dual description of market-consistent prices with acceptable risk. The dual characterization requires an appropriate extension of the classical Fundamental Theorem of Asset Pricing where the role of arbitrage opportunities is played by good deals, i.e., costless investment opportunities with acceptable risk-reward tradeoff. In particular, we highlight the importance of scalable good deals, i.e., investment opportunities that are good deals regardless of their volume. The talk is based on joint work with Maria Arduca.
Within the CRC this talk is associated to the project(s): C3, C4, C5, C7 |
Back
