Abstract

In a complete financial market every contingent claims can be replicated by a portfolio of traded securities and, hence, admits a well-defined arbitrage price. Of course, complete financial models are just an idealistic or ``zero-order" approximation of reality and their practical use should be complemented by a careful accounting for various market imperfections such as incompleteness, transaction costs, restrictions on short selling, etc.. In this talk we shall argue that the crucial elements in the computation of the ``first-order" corrections reflecting the ``subjective" nature of economic agents are their risk-tolerance wealth processes. The latter concept was introduced and studied in a joint paper with Mihai Sirbu and will be the focus of the presentation.

MONDAY, September 29, 2008
Time: 5:00 P.M.
Location: WeH 6423