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arXiv · 1807.04612

Pricing without martingale measure

Julien Baptiste·Laurence Carassus·Emmanuel Lépinette
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Abstract

For several decades, the no-arbitrage (NA) condition and the martingale measures have played a major role in the financial asset's pricing theory. We propose a new approach for estimating the super-replication cost based on convex duality instead of martingale measures duality: Our prices will be expressed using Fenchel conjugate and bi-conjugate. The super-hedging problem leads endogenously to a weak condition of NA called Absence of Immediate Profit (AIP). We propose several characterizations of AIP and study the relation with the classical notions of no-arbitrage. We also give some promising numerical illustrations.

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Julien Baptiste, Laurence Carassus, Emmanuel Lépinette. 2018-07-12. Pricing without martingale measure. https://arxiv.org/abs/1807.04612

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