Strong bubbles and strict local martingales (Q2814669)

The authors study the notion of bubbles on a financial market with assets treated in a symmetric way. A bubble is defined without using the martingale notation. Namely, a market has a strong bubble if the price of an asset differs from its superreplication price, i.e. from its fundamental value. This definition has a clear economical meaning and does not depend on any choice of a risk-neutral measure. It is shown, among others, that under an assumption of weak absence of arbitrage a market has a strong bubble if and only if asset prices are strict local martingales under all possible equivalent local martingale measures. The authors compare their definitions and results to the existing literature on bubbles. Moreover, Section 5 contains very interesting examples.