The birth of (a robust) Arbitrage Theory in de Finetti's early contributions

Paper: arXiv 2310.07291

Authors: Marco Maggis

Abstract

\textit{Il significato soggettivo della probabilità} (1931) by B. de Finetti \cite{deF} is unanimously considered the rise of `subjectivism’, a notion which strongly influenced both Probability and Decision Theory. What is less acknowledge is that \cite{deF} posed the foundations of modern arbitrage theory. In this paper we aim at examining how de Finetti’s contribution should be considered as the precursor of Asset Pricing Theory and we show how his findings relate to recent developments in Robust Finance.

Complexity vs Empirical Score

• Math Complexity: 0.0/10
• Empirical Rigor: 0.0/10
• Quadrant: Philosophers — conceptual discussion, limited math and data

Why this score: Scoring failed: Could not find valid JSON in LLM response: line 1 column 1 (char 0)

Research Flowchart

  flowchart TD
    A[Research Goal: Evaluate de Finetti 1931 as precursor to Asset Pricing & Robust Finance] --> B[Data/Inputs: Historical text 'Il significato soggettivo della probabilità' & Modern Arbitrage Theory]
    B --> C[Methodology: Comparative Analysis of Subjective Probability vs. Asset Pricing]
    C --> D[Computational/Theoretical Process: Map de Finetti's no-arbitrage conditions to modern Multi-Asset & Robust Finance models]
    D --> E[Key Finding 1: de Finetti laid foundational principles of modern Asset Pricing Theory]
    D --> F[Key Finding 2: Early subjectivism directly connects to recent developments in Robust Finance]