Financial Asset Price Bubbles under Model Uncertainty by Francesca Biagini (U of Munich, Visiting UCSB)

Event Date: 

Monday, October 30, 2017 -
3:30pm to 4:30pm

Financial Asset Price Bubbles under Model Uncertainty

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  under uncertainty 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. , Follmer, 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.