Stability of No-Arbitrage Property Under Model Uncertainty

Statistics & Probability Letters, Volume 83, Issue 1, January 2013, Pages 89–92

6 Pages Posted: 9 Nov 2013 Last revised: 24 Sep 2017

Date Written: Janurary 1, 2012

Abstract

We study the stability of the no-arbitrage property under model uncertainty. We measure model uncertainty with the total variation distance of underlying probability distributions. We show that sufficiently small changes of the underlying probability distribution preserve the no-arbitrage property of the financial market model.

Keywords: stability, robustness, financial market, no-arbitrage, total variation distance, model uncertainity

JEL Classification: A10, G10

Suggested Citation

Ostrovski, Vladimir, Stability of No-Arbitrage Property Under Model Uncertainty (Janurary 1, 2012). Statistics & Probability Letters, Volume 83, Issue 1, January 2013, Pages 89–92, Available at SSRN: https://ssrn.com/abstract=2351727

Vladimir Ostrovski (Contact Author)

Talanx Asset Management ( email )

Charles-de-Gaulle-Platz 1
Cologne, DE NRW 50679
Germany

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