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
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: Suggested Citation