hero working papers

Put-Call Parity and Market Frictions

Number: 447
Year: 2012
Author(s): Simone Cerreia-Vioglio, Fabio Maccheroni, Massimo Marinacci
We extend the Fundamental Theorem of Finance and the Pricing Rule Representation Theorem of Cox and Ross (see Ross [35] and [37] and Cox and Ross [9]) to the case in which market frictions are aken into account but the Put-Call 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. As a further contribution, in so doing we endogenize the state space structure and the contingent claim representation usually assumed to represent assets and markets.