Article ID: | iaor20013398 |
Country: | Germany |
Volume: | 51 |
Issue: | 3 |
Start Page Number: | 375 |
End Page Number: | 397 |
Publication Date: | Jan 2000 |
Journal: | Mathematical Methods of Operations Research (Heidelberg) |
Authors: | Schl M. |
Keywords: | portfolio management |
The paper studies connections between arbitrage and utility maximization in a discrete-time financial market. The market is incomplete. Thus one has several choices of equivalent martingale measures to price contingent claims. Davis determines a unique price for a contingent claim which is based on an optimal dynamic portfolio by use of a ‘marginal rate of substitution’ argument. Here conditions will be given such that this price is determined by a martingale measure and thus by a consistent price system. The underlying utility function