Fragility of arbitrage and bubbles in diffusion models
Speaker:
Miklos Rasonyi, University of Edinburgh
Date and Time:
Friday, January 15, 2010 - 3:15pm to 4:00pm
Abstract:
We show that, in a large class of diffusion models for price processes, there is always another ”arbitrarily uniformly close” model which is arbitrage- and bubble-free. Our result applies to some well-known examples such as the inverse Bessel process and certain stochastic volatility models and raises questions about how to view arbitrage and bubbles in financial markets. This is joint work with Paolo Guasoni.