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An Interval of No-Arbitrage Prices in Financial Markets with Volatility Uncertainty

Author

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  • Hanlei Hu
  • Zheng Yin
  • Weipeng Yuan

Abstract

In financial markets with volatility uncertainty, we assume that their risks are caused by uncertain volatilities and their assets are effectively allocated in the risk-free asset and a risky stock, whose price process is supposed to follow a geometric -Brownian motion rather than a classical Brownian motion. The concept of arbitrage is used to deal with this complex situation and we consider stock price dynamics with no-arbitrage opportunities. For general European contingent claims, we deduce the interval of no-arbitrage price and the clear results are derived in the Markovian case.

Suggested Citation

  • Hanlei Hu & Zheng Yin & Weipeng Yuan, 2017. "An Interval of No-Arbitrage Prices in Financial Markets with Volatility Uncertainty," Mathematical Problems in Engineering, Hindawi, vol. 2017, pages 1-11, June.
    • Handle: RePEc:hin:jnlmpe:5769205
    DOI: 10.1155/2017/5769205
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