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Some No-Arbitrage Rules under Short-Sales Constraints and Applications to Converging Asset Prices


Coculescu, Delia; Jeanblanc, Monique (2017). Some No-Arbitrage Rules under Short-Sales Constraints and Applications to Converging Asset Prices. Mathematical Finance n/a, University of Zurich.

Abstract

Under short sales prohibitions, no free lunch with vanishing risk (NFLVRS) is known to be equivalent to the existence of an equivalent supermartingale measure for the price processes (Pulido, 2014).We give a necessary condition for the drift of a price process to satsify (NFLVRS). For two given price processes, we introduce the concept of fundamental supermartingale measure, and when a certain condition necessary to the construction of this fundamental supermartingale measure is not fulfilled, we provide the corresponding arbitrage portfolios. The motivation of our study lies in understanding the particular case of converging prices, i.e., two prices that coincide at a bounded random time.

Abstract

Under short sales prohibitions, no free lunch with vanishing risk (NFLVRS) is known to be equivalent to the existence of an equivalent supermartingale measure for the price processes (Pulido, 2014).We give a necessary condition for the drift of a price process to satsify (NFLVRS). For two given price processes, we introduce the concept of fundamental supermartingale measure, and when a certain condition necessary to the construction of this fundamental supermartingale measure is not fulfilled, we provide the corresponding arbitrage portfolios. The motivation of our study lies in understanding the particular case of converging prices, i.e., two prices that coincide at a bounded random time.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:2017
Deposited On:15 Jan 2019 15:29
Last Modified:16 Jan 2019 04:13
Series Name:Mathematical Finance
OA Status:Green
Official URL:https://arxiv.org/abs/1709.09252
Other Identification Number:merlin-id:17206

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