An application of the duality theory of linear optimization leads to the well known arbitrage pricing theorems of financial mathematics, namely, the equivalence between the absence of arbitrage and the existence of an equivalent martingale probability measure. The prices of contingent claims can then be calculated based on the set of martingale probability measures. Especially, in the incomplet...

In this short note we show how virtual arbitrage opportunities can be modelled and included in the standard derivative pricing without changing the general framework. Whatever people say about the drawbacks of the Black-Scholes (BS) approach [1] to derivative pricing, it is a standard method and almost any pricing and hedging software in nancial institutions is based on it. Practitioners have g...

The notion of No Free Lunch with Vanishing Risk (or NFLVR in short) w.r.t. admissible strategies depends on the choice of numeraire. Yan(1998) introduced the notion of allowable strategy and showed that condition of NFLVR w.r.t. allowable strategies is independent of the choice of numeraire and is equivalent to the existence of an equivalent martingale measure for the deflated price process. In...

This paper develops a nonparametric option pricing theory and numerical method for European, American and path-dependent derivatives. In contrast to the nonparametric curve fitting techniques commonly seen in the literature, this nonparametric pricing theory is more in line with the canonical valuation method developed Stutzer (1996) for pricing options with only a sample of asset returns. Unli...

corporate governance is the system by which corporations are directed and controlled. corporate governance also provides the structure through which company objectives are established, the means to achieve these objectives, and how to monitor their performance. icts have the potential to make organization and its services more transparent by providing easy access to information. this research a...

This paper surveys some recent developments in the theory of capital markets. Particular emphasis is given to two strands of the literature. The rst covers some recent and fundamental extensions to the theory of risk aversion and the demand for risky assets. These papers are concerned with the e ect of nonhedgeable background risk on risk attitudes. The important implications for nance are for ...

We introduce a distinction between model-based and model-free arbitrage and formulate an operational de nition for absence of model-free arbitrage in a nancial market, in terms of a set of minimal requirements for the pricing rule prevailing in the market. We show that any pricing rule verifying these properties can be represented as a conditional expectation operator with respect to a probabil...