TRAJECTORIAL MARKET MODELS: ARBITRAGE AND PRICING INTERVALS
REVISTA DE LA UNION MATEMATICA ARGENTINA(2019)
Abstract
The paper develops general, non-probabilistic market models based on trajectory sets and minmax price bounds leading to price intervals for European options. The approach provides the trajectory based analogue of a martingale process as well as a generalization that allows a limited notion of arbitrage in the market while still providing coherent option prices. An illustrative example is described in detail. Several properties of the price bounds are obtained, in particular a connection with risk neutral pricing is established for trajectory markets associated to a continuous-time martingale model.
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Key words
Trajectory based market models,Arbitrage,Minmax,Martingales
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