Viability and Arbitrage Under Knightian Uncertainty

35 Pages Posted: 10 Jan 2018

See all articles by Matteo Burzoni

Matteo Burzoni

Università degli studi di Milano - Dipartimento di Matematica

Frank Riedel

Bielefeld University - Center for Mathematical Economics

H. Mete Soner

ETH Zürich - Department of Mathematics

Date Written: July 12, 2017

Abstract

We reconsider the microeconomic foundations of financial economics under Knightian Uncertainty. In a general framework, we discuss the absence of arbitrage, its relation to economic viability, and the existence of suitable nonlinear pricing expectations. Classical financial markets under risk and no ambiguity are contained as special cases, including various forms of the Efficient Market Hypothesis. For Knightian uncertainty, our approach unifies recent versions of the Fundamental Theorem of Asset Pricing under a common framework.

Keywords: Robust Finance, No Arbitrage, Viability, Knightian Uncertainty

JEL Classification: D53, G10

Suggested Citation

Burzoni, Matteo and Riedel, Frank and Soner, H. Mete, Viability and Arbitrage Under Knightian Uncertainty (July 12, 2017). Swiss Finance Institute Research Paper No. 17-48, Available at SSRN: https://ssrn.com/abstract=3099057 or http://dx.doi.org/10.2139/ssrn.3099057

Matteo Burzoni

Università degli studi di Milano - Dipartimento di Matematica ( email )

Via Festa del Perdono, 7
Milan, 20122
Italy

Frank Riedel

Bielefeld University - Center for Mathematical Economics ( email )

Postfach 10 01 31
Bielefeld, D-33501
Germany

H. Mete Soner (Contact Author)

ETH Zürich - Department of Mathematics ( email )

R¨amistrasse 101
Raemistr. 101
Z¨urich, 8092
Switzerland

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