Financial markets with volatility uncertainty

Vorbrink J (2010) Working Papers. Institute of Mathematical Economics; 441.
Bielefeld: Center for Mathematical Economics.

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We investigate financial markets under model risk caused by uncertain volatilities. For this purpose we consider a financial market that features volatility uncertainty. To have a mathematical consistent framework we use the notion of G–expectation and its corresponding G–Brownian motion recently introduced by Peng (2007). Our financial market consists of a riskless asset and a risky stock with price process modeled by a geometric G–Brownian motion. We adapt the notion of arbitrage to this more complex situation and consider stock price dynamics which exclude arbitrage opportunities. Due to volatility uncertainty the market is not complete any more. We establish the interval of no–arbitrage prices for general European contingent claims and deduce explicit results in a Markovian setting.
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Vorbrink J. Financial markets with volatility uncertainty. Working Papers. Institute of Mathematical Economics. Vol 441. Bielefeld: Center for Mathematical Economics; 2010.
Vorbrink, J. (2010). Financial markets with volatility uncertainty (Working Papers. Institute of Mathematical Economics, 441). Bielefeld: Center for Mathematical Economics.
Vorbrink, J. (2010). Financial markets with volatility uncertainty. Working Papers. Institute of Mathematical Economics, 441, Bielefeld: Center for Mathematical Economics.
Vorbrink, J., 2010. Financial markets with volatility uncertainty, Working Papers. Institute of Mathematical Economics, no.441, Bielefeld: Center for Mathematical Economics.
J. Vorbrink, Financial markets with volatility uncertainty, Working Papers. Institute of Mathematical Economics, vol. 441, Bielefeld: Center for Mathematical Economics, 2010.
Vorbrink, J.: Financial markets with volatility uncertainty. Working Papers. Institute of Mathematical Economics, 441. Center for Mathematical Economics, Bielefeld (2010).
Vorbrink, Jörg. Financial markets with volatility uncertainty. Bielefeld: Center for Mathematical Economics, 2010. Working Papers. Institute of Mathematical Economics. 441.
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