arXiv research

It is shown that absence of arbitrage opportunity in financial markets is a particular case of existence of uncertainty in decision system. Absence of arbitrage opportunity is considered in the sense of the Arrow-Debreu model of financial market with a riskless asset, while uncertainty (or ambiguity) is defined on the …

We characterize absence of arbitrage with simple trading strategies in a discounted market with a constant bond and several risky assets. We show that if there is a simple arbitrage, then there is a 0-admissible one or an obvious one, that is, a simple arbitrage which promises a minimal riskless gain of ε, if the inves…

In a semimartingale financial market model, it is shown that there is equivalence between absence of arbitrage of the first kind (a weak viability condition) and the existence of a strictly positive process that acts as a local martingale deflator on nonnegative wealth processes.

The paper analyzes trading strategies in markets with high frictions.

Study arbitrage in financial markets with trading restrictions.

We obtain a deterministic characterisation of the \emph{no free lunch with vanishing risk}, the \emph{no generalised arbitrage} and the \emph{no relative arbitrage} conditions in the one-dimensional diffusion setting and examine how these notions of no-arbitrage relate to each other.

Study arbitrage theory without numéraire, generalizing NUPBR.

In a model independent discrete time financial market, we discuss the richness of the family of martingale measures in relation to different notions of Arbitrage, generated by a class $\mathcal{S}$ of significant sets, which we call Arbitrage de la classe $\mathcal{S}$. The choice of $\mathcal{S}$ reflects into the int…

The article presents a description of geometry of Banach structures forming mathematical base of markets arbitrage absence type phenomena. In this connection the role of reflexive subspaces (replacing classically considered finite-dimensional subspaces) and plasterable cones is uncovered.

Paper explores arbitrage and CAPM in continuous time.

New approach to asset pricing without martingale measures.

No-arbitrage constraints on implied variance slope are weak, leading to almost guaranteed arbitrage in many cases.

In this article, we show how to calibrate the widely-used SVI parameterization of the implied volatility surface in such a way as to guarantee the absence of static arbitrage. In particular, we exhibit a large class of arbitrage-free SVI volatility surfaces with a simple closed-form representation. We demonstrate the h…

In this paper we derive an effective equation for derivative pricing which accounts for the presence of virtual arbitrage opportunities and their elimination by the market. We model the arbitrage return by a stochastic process and find an equation for the average derivative price. This is an integro-differential equati…

We consider fundamental questions of arbitrage pricing arising when the uncertainty model is given by a set of possible mutually singular probability measures. With a single probability model, essential equivalence between the absence of arbitrage and the existence of an equivalent martingale measure is a folk theorem,…

Study multi-currency markets with multiple interest rates and collateral.

No arbitrage in financial markets with special semimartingales.

Determines conditions for arbitrage in complex financial markets.

The paper explores risk measures and arbitrage in financial markets.

New method for pricing financial products without no-arbitrage condition.

The paper sets criteria for no arbitrage in complex financial models.

Market efficiency at least requires the absence of weak arbitrage opportunities, but this is not sufficient to establish a situation where the market is sensitive, i.e., where it "fully reflects" or "rapidly adjusts to" some information flow including the evolution of asset prices. By contrast, No Weak Arbitrage togeth…

This work aims at a deeper understanding of the mathematical implications of the economically-sound condition of absence of arbitrages of the first kind in a financial market. In the spirit of the Fundamental Theorem of Asset Pricing (FTAP), it is shown here that absence of arbitrages of the first kind in the market is…

Characterizes no Butterfly arbitrage in SVI model parameters.

We consider a nondominated model of a discrete-time financial market where stocks are traded dynamically, and options are available for static hedging. In a general measure-theoretic setting, we show that absence of arbitrage in a quasi-sure sense is equivalent to the existence of a suitable family of martingale measur…

Paper shows equivalence between NA and ACLMM in diffusion models.

The present paper deals with the characterization of no-arbitrage properties of a continuous semimartingale. The first main result, Theorem \refMainTheoremCharNA, extends the no-arbitrage criterion by Levental and Skorohod [Ann. Appl. Probab. 5 (1995) 906-925] from diffusion processes to arbitrary continuous semimartin…

Derives conditions for no arbitrage in financial markets with stochastic or diffusion models.

We prove that, for locally bounded processes, absence of arbitrage opportunities of the first kind is equivalent to the existence of a dominating local martingale measure. This is related to and motivated by results from the theory of filtration enlargements.

"Fundamental theorem of asset pricing" roughly states that absence of arbitrage opportunity in a market is equivalent to the existence of a risk-neutral probability. We give a simple counterexample to this oversimplified statement. Prices are given by linear forms which do not always correspond to probabilities. We giv…

We present an arbitrage-free non-parametric yield curve prediction model which takes the full (discretized) yield curve as state variable. We believe that absence of arbitrage is an important model feature in case of highly correlated data, as it is the case for interest rates. Furthermore, the model structure allows t…

Detects arbitrage in multi-asset derivatives markets.

This paper aims at transferring the philosophy behind Heath-Jarrow-Morton to the modelling of call options with all strikes and maturities. Contrary to the approach by Carmona and Nadtochiy (2009) and related to the recent contribution Carmona and Nadtochiy (2012) by the same authors, the key parametrisation of our app…

The paper values reinsurance contracts for dynamic catastrophe claims without arbitrage.

Study arbitrage-free models in financial markets under uncertainty.

Study uncovers CDS anomalies leading to arbitrage profits.

The study extends a framework to analyze cross-impact in multi-asset markets.

Study on portfolio selection and risk arbitrage in financial markets.

Model analyzes how delayed information impacts option pricing.

Extends insurance-finance arbitrage concept to include model uncertainty.

This paper studies dynamic stochastic optimization problems parametrized by a random variable. Such problems arise in many applications in operations research and mathematical finance. We give sufficient conditions for the existence of solutions and the absence of a duality gap. Our proof uses extended dynamic programm…

Transform drift of diffusions without knowing if measure change is a martingale.

We develop robust pricing and hedging of a weighted variance swap when market prices for a finite number of co--maturing put options are given. We assume the given prices do not admit arbitrage and deduce no-arbitrage bounds on the weighted variance swap along with super- and sub- replicating strategies which enforce t…

The research presented in this work is motivated by recent papers by Brigo et al. (2011), Burgard and Kjaer (2009), Crépey (2012), Fujii and Takahashi (2010), Piterbarg (2010) and Pallavicini et al. (2012). Our goal is to provide a sound theoretical underpinning for some results presented in these papers by developing …

Study examines how arbitrage between ETF and futures affects market liquidity during crashes.

A wealth-process set is abstractly defined to consist of nonnegative càdlàg processes containing a strictly positive semimartingale and satisfying an intuitive re-balancing property. Under the condition of absence of arbitrage of the first kind, it is established that all wealth processes are semimartingales and that t…

We propose a new non parametric technique to estimate the CALL function based on the superhedging principle. Our approach does not require absence of arbitrage and easily accommodates bid/ask spreads and other market imperfections. We prove some optimal statistical properties of our estimates. As an application we firs…

Researchers model sovereign Uruguayan debt using Gaussian models to improve pricing of non-traded bonds.