The birth of (a robust) Arbitrage Theory in de Finetti's early contributions

TL;DR

This paper explores how de Finetti's early work laid the groundwork for modern arbitrage theory and its connection to contemporary developments in Asset Pricing and Robust Finance.

Contribution

It highlights de Finetti's overlooked role in founding modern arbitrage theory and links his ideas to recent advances in Robust Finance.

Findings

De Finetti's work predates and influences modern arbitrage theory

Connections between de Finetti's foundations and current Asset Pricing models

Relevance of de Finetti's ideas to Robust Finance developments

Abstract

\textit{Il significato soggettivo della probabilit\`a} (1931) by B. de Finetti \cite{deF} is unanimously considered the rise of `subjectivism', a notion which strongly influenced both Probability and Decision Theory. What is less acknowledge is that \cite{deF} posed the foundations of modern arbitrage theory. In this paper we aim at examining how de Finetti's contribution should be considered as the precursor of Asset Pricing Theory and we show how his findings relate to recent developments in Robust Finance.