1. Institucional Repository Insper
2. Artigos
3. Coleção de Artigos Científicos
4. Updating pricing rules

Type:	Artigo Científico
Title:	Updating pricing rules
Author:	Araujo, Aloisio Chateauneuf, Alain Faro, José Heleno Holanda, Bruno
Publication Date:	2018
Abstract:	This paper studies the problem of updating the super-replication prices of arbitrage-free finite financial markets with a frictionless bond. Any super-replication price is a pricing rule represented as the support function of some polytope of probabilities containing at least one strict positive probability, which captures the closure of the set of risk-neutral probabilities of any underlying market consistent with the given pricing rule. We show that a weak form of dynamic consistency characterizes the full (prior-by-prior) Bayesian updating of pricing rules. In order to study the problem of updating pricing rules revealing incomplete markets without frictions on all tradable securities, we first show that the corresponding polytope of probabilities must be non-expansible. We find that the full Bayesian updating does not preserve non-expansibility, unless a condition of non-trivial updating is satisfied. Finally, we show that the full Bayesian updating of pricing rules of efficient complete markets is completely stable. We also show that efficient complete markets with uniform bid–ask spreads are stable under full Bayesian updating, while efficient complete markets that fulfill the put–call parity are stable only under a Choquet pricing rule computed with respect to a regular concave nonadditive risk-neutral probability.
Keywords (english terms):	Pricing rules Full Bayesian update Incomplete markets Efficient complete markets Bid–ask spreads
Language:	Inglês
CNPq Area:	Ciências Sociais Aplicadas
URI:	https://link.springer.com/article/10.1007/s00199-018-1125-9
Copyright:	O INSPER E ESTE REPOSITÓRIO NÃO DETÊM OS DIREITOS DE USO E REPRODUÇÃO DOS CONTEÚDOS AQUI REGISTRADOS. É RESPONSABILIDADE DOS USUÁRIOS INDIVIDUAIS VERIFICAR OS USOS PERMITIDOS NA FONTE ORIGINAL, RESPEITANDO-SE OS DIREITOS DE AUTOR OU EDITOR.
Appears in Collections:	Coleção de Artigos Científicos

Items in DSpace are protected by copyright, with all rights reserved, unless otherwise indicated.