Financial Asset Price Bubbles under Model Uncertainty

Francesca Biagini (LMU München)
Thursday, June 29, 2017 - 4:00pm
TU Berlin, Straße des 17. Juni 136, 10623 Berlin, Raum MA 043

We study the concept of financial bubble under model uncertainty. We suppose the agent to be endowed with a family Q of local martingale measures for the underlying discounted asset price. The priors are allowed to be mutually singular to each other. One fundamental issue is the definition of a well-posed concept of robust fundamental value of a given financial asset.
Since in this setting we have no linear pricing system, we choose to describe robust fundamental values through superreplication prices. To this purpose, we investigate a dynamic version of robust superreplication, which we use to introduce the notions of bubble and robust fundamental value in a consistent way with the existing literature in the classical case of one prior.

This talk is based on the works [1] and [2].

[1] Biagini, F., Föllmer, H. and Nedelcu, S. Shifting martingale measures and the slow birth of a bubble as a submartingale, Finance and Stochastics: Volume 18, Issue 2, Page 297-326, 2014.

[2] Biagini, F., Mancin, J., Financial Asset Price Bubbles under Model Uncertainty, Preprint, 2016.