Consistent Price Systems under Model Uncertainty

TL;DR

This paper extends the fundamental theorem of asset pricing to discrete-time markets with transaction costs and model uncertainty, establishing a robust no-arbitrage condition linked to consistent price systems.

Contribution

It introduces a robust no-arbitrage concept and proves its equivalence to the existence of strictly consistent price systems under model uncertainty.

Findings

Robust no-arbitrage condition formulated for markets with transaction costs

Equivalence established between no-arbitrage and consistent price systems

Framework applicable to discrete-time markets with model uncertainty

Abstract

We develop a version of the fundamental theorem of asset pricing for discrete-time markets with proportional transaction costs and model uncertainty. A robust notion of no-arbitrage of the second kind is defined and shown to be equivalent to the existence of a collection of strictly consistent price systems.