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Probability and Computational Finance Seminar
Pietro Siorpaes
Carnegie Mellon University
Title: The relation between arbitrage-free prices and marginal utility-based prices

Abstract: I investigate whether all arbitrage free prices are obtained by utility maximization. In other words, is there a `bad' subset of arbitrage free prices which are never marginal prices, irrespectively of the investor and his endowment, or are all arbitrage free prices equally `realistic'? And if they are, are they simply parameterized by the initial endowment, or does the preference structure of the investor matter, discriminating between which arbitrage free prices are among his marginal prices and which arise only because of somebody else?

Other objectives are to prove that marginal prices are compatible with the market mechanism (i.e. they never allow for an arbitrage), and to study when the super-replication price can be recovered from the marginal prices taking limits in the initial endowment (for a fixed risk aversion).

Date: Monday, March 28, 2011
Time: 5:00 pm
Location: Wean Hall 6423
Submitted by:  Kramkov