The St. Petersburg Paradox was proposed two centuries ago . In the paper , we propose a new pricing theory with several rules to solve the paradoxand state that the fair pricing should be judged by the buyer and the seller independently. The seller is concerned about costs, and the buyer is concerned about the realistic prospect of returns. This pricing theory can be applied to financial market to solve the confusion with fat tail distribution .
The St. Petersburg paradox, an important topic in probability theory, has not been solved last 280 years. Since Nicolaus Bernoulli proposed the St. Petersburg Paradox in 1738, many people had tried to solve it and had proposed various explanations, but all are not satisfactory . In the paper we proposed a new pricing theory with several rules , which incidentally resolves this paradox. The new pricing theory states that so-called fair (reasonable) pricing should be judged by the seller and the buyer independently. Reasonable pricing for the seller may not be appropriate for the buyer. The seller cares about costs, while the buyer is concerned about the realistic prospect of returns. The pricing theory we proposed can be applied to financial market to solve the confusion that financial asset return with fat tails distribution will cause the option pricing formula to fail, thus making up the theoretical defects of quantitative financial pricing theory. We want to pay tribute to Edward O. Thorp with this article, a man for all markets, for the author entered the financial field just because getting read his story .
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Paradox was proposed two centuries ago
paradox, an important topic in probability theory, has not been solved last 280 years. Since Nicolaus Bernoulli proposed the St. Petersburg Paradox in 1738, many people had tried to solve it and had proposed various explanations, but all are not satisfactory
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, we propose
we proposed
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to solve the paradoxand state that the fair
, which incidentally resolves this paradox. The new pricing theory states that so-called fair (reasonable)
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buyer and the seller independently. The seller is concerned
seller and the buyer independently. Reasonable pricing for the seller may not be appropriate for the buyer. The seller cares
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and
while
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This pricing theory
The pricing theory we proposed
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with fat tail distribution
that financial asset return with fat tails distribution will cause the option pricing formula to fail, thus making up the theoretical defects of quantitative financial pricing theory. We want to pay tribute to Edward O. Thorp with this article, a man for all markets, for the author entered the financial field just because getting read his story