Arbitrage and universal pricing
نویسنده
چکیده
This paper considers two methods for pricing assets and examines the relations between them. The +rst method is based on the principle of no-arbitrage, which asserts that introduction of the new asset should not create an arbitrage in a market that was before arbitrage free. This condition is satis+ed by prices for the new asset between speci+c lower and upper limits, determined as the values of certain linear programming problems. The duals of these problems determine a pricing random variable. In the second method of pricing, a new asset is priced so that a given utility maximizing investor will include this asset in his or her portfolio at a zero level. The corresponding price is called the zero-level price. A zero-level price is universal for a class of utility functions if it is a zero-level price for every utility function within that class. This paper shows that universal zero-level prices exist in several important situations. ? 2002 Elsevier Science B.V. All rights reserved. JEL classi!cation: G10; G12
منابع مشابه
Arbitrage and Universal Pricing ∗ April 2001
This paper considers two methods for pricing assets and examines the relations between them. The first method is based on the principle of no-arbitrage, which asserts that introduction of the new asset should not create an arbitrage in a market that was before arbitrage free. This condition is satisfied by prices for the new asset between specific lower and upper limits, determined as the value...
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