We develop a new approach to pricing and hedging contingent claims in incomplete markets. Mimicking as closely as possible in an incomplete markets framework the no--arbitrage arguments that have been developed in complete markets leads us to defining the concept of pseudo--arbitrage. Building...

This paper reports an option pricing experiment on the binomial model, which has been conducted with professional traders of financial assets. The experimental results are compared to a corresponding experiment with students. The data show that professional traders achieve lower arbitrage...