We extend the Fundamental Theorem of Finance and the Pricing Rule Representation Theorem to the case in which market frictions are taken into account but the PutCall Parity is still assumed to hold. In turn, we obtain a representation of the pricing rule as a discounted expectation with respect to a nonadditive risk neutral probability.
Put-Call Parity and market frictions
CERREIA VIOGLIO, SIMONE;MACCHERONI, FABIO ANGELO;MARINACCI, MASSIMO
2015
Abstract
We extend the Fundamental Theorem of Finance and the Pricing Rule Representation Theorem to the case in which market frictions are taken into account but the PutCall Parity is still assumed to hold. In turn, we obtain a representation of the pricing rule as a discounted expectation with respect to a nonadditive risk neutral probability.
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