Analyzing the Fundamental Theorem of Asset Pricing with Special Reference to African Stock Markets

Posted: 25 Mar 2019

See all articles by Professor Alain Ndedi

Professor Alain Ndedi

International Council for Family Business; YENEPAD; Saint Monica University; University of Johannesburg; University of Pretoria; Charisma University

Rose Liliane Amoa

Charisma University

Date Written: March 1, 2019

Abstract

The fundamental theorem of asset pricing is one of the most remarkable results in financial mathematics. Indeed in financial mathematics, asset pricing processes are modeled as stochastic processes on a given probability space (;F; P). In this project we discuss the fundamental theorem of asset pricing which relates the existence of an equivalent martingale measure to the no-arbitrage condition (i.e it is impossible to make money out of nothing) and states that a financial securities market model is arbitrage free if and only if there is a measure Q which is equivalent to the given measure P, under which all (discounted) asset price processes are martingale. We give an example of pricing, the mathematical and financial object useful for the main notions of this theorem and we provide a complete proof of this theorem for a discrete-time model with only nitely many states and nite horizon. The story of this theorem started - like most of modern Mathematical Finance with the work of F. Black, M. Scholes (1973:637) and R. Merton (1973:141). This is paper is a summary of a Master dissertation at the African Institute for Mathematical Sciences (AIMS) in South Africa.

Keywords: Theorem of Asset Pricing, African stock markets

Suggested Citation

Ndedi, Alain Aime and Ndedi, Alain Aime and Amoa, Rose Liliane, Analyzing the Fundamental Theorem of Asset Pricing with Special Reference to African Stock Markets (March 1, 2019). Available at SSRN: https://ssrn.com/abstract=3345233

Alain Aime Ndedi (Contact Author)

International Council for Family Business ( email )

San Diego
United States

YENEPAD ( email )

PO Box 30069
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Pretoria, Pretoria 0135
South Africa
+27 84 992 9499 (Phone)

HOME PAGE: http://yenepad.virtualactivism.net

Saint Monica University ( email )

P.O. BOX 132
Buea, South West
Cameroon
237698727474 (Phone)
23767992-0777 (Fax)

HOME PAGE: http://www.stmonicauniversity.com

University of Johannesburg ( email )

UJ ADMINISTRATION. University of Johannesburg
PO Box 524. Auckland Park 2006.
Johannesburg, Gauteng
South Africa

HOME PAGE: http://www.uj.ac.za

University of Pretoria ( email )

University of Pretoria,
Private Bag X20, Hatfield,
Pretoria, Gauteng
South Africa

HOME PAGE: http://www.up.ac.za

Charisma University ( email )

30 Sandcastle Rd
Neptune CT, Grace Bay
Providenciales
Turks and Caicos Islands

Rose Liliane Amoa

Charisma University ( email )

Providenciales
Turks and Caicos Islands

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