UNSPECIFIED (1998) Pricing by arbitrage under arbitrary information. MATHEMATICAL FINANCE, 8 (2). pp. 163-168. ISSN 0960-1627

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Abstract

A substantial applications literature on pricing by arbitrage has effectively restricted information to that arising solely from securities markets; return distributions are then governed solely by past prices. We reconsider pricing by arbitrage in markets rendered incomplete by arbitrary information, which. moreover, map influence required returns. We show that contingent claims depending solely on securities' normalized price histories are pi iced by arbitrage if and only if all risk-adjusted probabilities agree upon the law of primitive securities' normalized prices. We show how existing diffusion-based results can be preserved, and resolve an issue relating to Merton's (1973) stochastic interest late model.

Item Type:	Journal Article
Subjects:	H Social Sciences > HG Finance H Social Sciences > HC Economic History and Conditions Q Science > QA Mathematics H Social Sciences
Journal or Publication Title:	MATHEMATICAL FINANCE
Publisher:	BLACKWELL PUBLISHERS
ISSN:	0960-1627
Date:	April 1998
Volume:	8
Number:	2
Number of Pages:	6
Page Range:	pp. 163-168
Publication Status:	Published
URI:	http://wrap.warwick.ac.uk/id/eprint/15879

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