Characterizing arbitrage-free Choquet pricing
A new study advances asset pricing theory by extending arbitrage-free pricing to markets with frictions like transaction costs and bid-ask spreads. The authors show that arbitrage-free Choquet pricing rules do not require subadditivity or monotonicity, challenging standard assumptions. They link pricing under frictions to cooperative game theory, offering a new proof of Schmeidler’s theorem. The paper introduces flexible definitions and uses advanced mathematics, but lacks empirical tests and may be difficult for non-specialists.
What it examines
This paper studies asset pricing in markets with frictions, using Choquet pricing rules that do not require subadditivity or monotonicity. It aims to characterize arbitrage-free pricing by linking it to the existence of a linear stochastic discount factor and the nonemptiness of the core of a risk-neutral nonadditive probability.
What it concludes
The results provide new ways to identify arbitrage-free pricing in complex markets, with applications in financial economics and cooperative game theory. The framework can help design fair pricing rules under market frictions and offers alternative proofs for classic game theory results, suggesting further research in infinite-dimensional and nonadditive settings.
Evidence objects
The paper revolutionizes asset pricing by extending arbitrage-free pricing to markets with frictions, such as transaction costs and bid-ask spreads, where traditional models have struggled to provide realistic solutions.
key_findings bullet 1 · key_findings · validation V0
A standout finding is the characterization of arbitrage-free Choquet pricing rules without assuming subadditivity or monotonicity, linking pricing under market frictions to cooperative game theory and Schmeidlers theorem using advanced mathematical tools.
key_findings bullet 2 · key_findings · validation V0
While the framework introduces flexible new definitions and rigorous methodology, its complexity may challenge non-experts, and it notably lacks empirical tests or practical calibration examples for real-world application.
key_findings bullet 3 · key_findings · validation V0
This paper innovatively extends the Choquet pricing framework by removing subadditivity and monotonicity, offering fresh characterizations of arbitrage-free pricing. Its unique generalization of the Fundamental Theorem of Asset Pricing and alternative proof of Schmeidlers theorem connect asset pricing to cooperative game theory, making it a compelling, influential theoretical contribution.
key_findings bullet 4 · key_findings · validation V0
Raw abstract and provenance
- … To capture a broader range of frictions observed in financial markets, pricing rules … ], who extended the Fundamental Theorem of Finance by showing that, in the presence …
Source row: 385 · abstract type: snippet