Study upper hedging prices for contingent claims in models with various types of arbitrage.
problem Valuation of contingent claims in market models with different types of arbitrage.
method Analysis of market models with increasing profit, strong arbitrage, and arbitrage of the first kind.
result Option prices are reduced when increasing profit is present, and corporate stock price processes can be derived from issuance and repurchase plans.
Paper analyzes arbitrage in uncertain markets, providing quantitative asset pricing.
problem Dealing with model uncertainty in markets that allow small arbitrage.
method Quantitative analysis of arbitrage, focusing on asset price processes close to martingales.
result Quantitative version of the Fundamental Theorem of Asset Pricing and Super-Replication Theorem.
New method for pricing financial products without no-arbitrage condition.
problem Pricing financial products without relying on no-arbitrage conditions.
method Convex duality and Fenchel conjugate for estimating super-replication cost.
result Endogenous weak no-arbitrage condition (AIP) leads to finite prices.
We generalize the Arbitrage Pricing Theory (APT) to include the contribution of virtual arbitrage opportunities. We model the arbitrage return by a stochastic process. The latter is incorporated in the APT framework to calculate the correction to the APT due to the virtual arbitrage opportunities. The resulting relatio…
Proposes a method to repair arbitrage in option prices data.
problem Arbitrage in option price data can lead to poor performance or failure of financial applications.
method Formulates data repair as a linear programming (LP) problem to minimise price changes within bid and ask price bounds.
result The proposed method gives sparse perturbations on data and improves model calibration with enhanced robustness and reduced calibration error.
The purpose of this work is to explore the role that random arbitrage opportunities play in pricing financial derivatives. We use a non-equilibrium model to set up a stochastic portfolio, and for the random arbitrage return, we choose a stationary ergodic random process rapidly varying in time. We exploit the fact that…
Paper proposes a risk-averse approach to energy storage price arbitrage using conformal uncertainty quantification.
problem Inherent volatility and uncertainty of real-time electricity prices create financial risks for storage arbitrage.
method Two-layer prediction model with conformal uncertainty quantification for high coverage of real-time price uncertainty.
result The framework achieves good profit margins with minimal losses, demonstrating effectiveness in real-time market.
In discrete time markets with proportional transaction costs, Schachermayer (2004) shows that robust no-arbitrage is equivalent to the existence of a strictly consistent price system. In this paper, we introduce the concept of prospective strict no-arbitrage that is a variant of the strict no-arbitrage property from Ka…
We provide a critical analysis of the proof of the fundamental theorem of asset pricing given in the paper "Arbitrage and approximate arbitrage: the fundamental theorem of asset pricing" by B. Wong and C.C. Heyde (Stochastics, 2010) in the context of incomplete Itô-process models. We show that their approach can only w…
Study shows cooperation can reduce investment risk and price gaps.
problem Investment risk and price gaps in cooperative markets.
method Introduced Collective Arbitrage and Collective Super-replication, established asset pricing theorems.
result Reduction of price intervals through collective super-replication.
Two ML approaches learn local volatility surfaces from option prices, with GP being arbitrage-free.
problem Interpolating European vanilla option prices to create a local volatility surface.
method Gaussian process regression and neural net with arbitrage penalties.
result GP approach is arbitrage-free and yields best out-of-sample calibration error.
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…
Develops a deep learning approach for statistical arbitrage.
problem Temporal price differences between similar assets.
method Constructs arbitrage portfolios using latent asset pricing factors and a convolutional transformer for time series signals.
result High risk-adjusted returns and Sharpe ratios with optimal trading policy.
Perpetual futures offer leverage without maturity, with prices influenced by funding rates.
problem Understanding and pricing perpetual futures with funding rates.
method Derive no-arbitrage prices and bounds in markets with trading costs. Empirically analyze deviations and Sharpe ratios of implied arbitrage strategies.
result Implied arbitrage strategies in crypto markets yield high Sharpe ratios, indicating significant pricing inefficiencies.
We investigate triangular arbitrage within the spot foreign exchange market using high-frequency executable prices. We show that triangular arbitrage opportunities do exist, but that most have short durations and small magnitudes. We find intra-day variations in the number and length of arbitrage opportunities, with la…
Revisits behavioral finance option pricing model to align with rational asset pricing theory.
problem Inconsistency between behavioral finance and rational asset pricing models in option pricing.
method Introduces arbitrage transaction costs to modify the behavioral finance option pricing formula.
result Modifies behavioral finance option pricing formula to be consistent with rational asset pricing theory.
Develops a nonparametric model for arbitrage-free pricing of illiquid derivatives.
problem Modeling joint dynamics of liquid vanilla options for arbitrage-free pricing of illiquid derivatives.
method Derives a state space for prices respecting underlying financial constraints using neural networks and imposes constraints to preserve no-arbitrage conditions.
result Neural SDE models are guaranteed to satisfy a set of linear inequalities and validated with numerical experiments.
Develops a new model for pricing without arbitrage opportunities.
problem Arbitrage opportunities in standard jump-diffusion models.
method Introduces a multi-type jump-diffusion model with diffusion-dependent jumps.
result Derives no-arbitrage condition linking drift to model parameters.
Method interpolates option prices and volatilities without arbitrage.
problem Interpolating option prices and volatilities without arbitrage.
method Sparse modeling approach based on integral equations and SVD.
result Flexible and efficient framework for arbitrage-free interpolation.
Modeling financial markets with sandpile model to understand price volatility and arbitrage constraints.
problem Understanding price volatility and arbitrage constraints in financial markets.
method Uses a sandpile model to represent information and price changes, linking size of price volatility to the scaling law of avalanches.
result Identifies a structural tension between non-arbitrage condition and price adjustments consistent with a constant Sharpe ratio.
The paper investigates cyclic arbitrage opportunities in decentralized exchanges.
problem Price discrepancies in decentralized exchanges lead to arbitrage opportunities.
method Theoretical framework and analysis of transaction-level data.
result Traders have executed over 292,606 cyclic arbitrages over eleven months, exploiting more than 138 million USD in revenue.
We explore the role that random arbitrage opportunities play in hedging financial derivatives. We extend the asymptotic pricing theory presented by Fedotov and Panayides [Stochastic arbitrage return and its implication for option pricing, Physica A 345 (2005), 207-217] for the case of hedging a derivative when arbitrag…
We derive behavioral finance option pricing formulas consistent with the rational dynamic asset pricing theory. In the existing behavioral finance option pricing formulas, the price process of the representative agent is not a semimartingale, which leads to arbitrage opportunities for the option seller. In the literatu…
The paper explores risk measures and arbitrage in financial markets.
problem Quantifying and managing risk in financial markets.
method Introduces new risk measure axioms and characterizes arbitrage conditions.
result Derives the consistent price interval for financial contracts.
In a continuous-time model with multiple assets described by càdlàg processes, this paper characterizes superhedging prices, absence of arbitrage, and utility maximizing strategies, under general frictions that make execution prices arbitrarily unfavorable for high trading intensity. Such frictions induce a duality bet…
Proposes a method to construct risk-neutral marginals from arbitrage-free option prices.
problem Lack of risk-neutral marginals that are free of arbitrage and easy to use.
method Explicit construction of risk-neutral marginals from discrete arbitrage-free option prices.
result Explicit construction guarantees risk-neutral marginals free of butterfly and calendar arbitrage.
The paper explores arbitrage opportunities in derivative markets under specific conditions.
problem Arbitrage opportunities in derivative markets under different conditions.
method Analyzes the relationship between pricing kernel monotonicity and stochastic arbitrage opportunities.
result Pricing kernel nonmonotonicity is equivalent to stochastic arbitrage opportunities under adequacy.
In this short note we show how virtual arbitrage opportunities can be modelled and included in the standard derivative pricing without changing the general framework.
Reflected geometric Brownian motion models are not arbitrage-free.
problem No-arbitrage condition violation in financial markets.
method Analysis of reflected geometric Brownian motion models.
result Models violate even the weakest no-arbitrage condition.
Investors trade based on shifting prices, leading to market inefficiencies.
problem Market inefficiencies due to trading behavior and financial dynamics.
method Analyzes trading strategies and market dynamics.
result Arbitrage opportunities arise from concentrated ownership and low collateral requirements.
The paper extends collective arbitrage concepts to multi-agent markets with cooperation.
problem Understanding collective market completeness and pricing in multi-agent systems.
method Develops new techniques and theorems to establish collective pricing-hedging duality and collective replication.
result Established a Second Fundamental Theorem of Asset Pricing in cooperative multi-agent settings.
New method finds arbitrage opportunities in fluctuating asset bands.
problem Finding arbitrage opportunities in fluctuating asset bands.
method Formulate as maximizing volatility within a price band, using convex-concave optimization.
result Approximately solves non-convex optimization problem for moving-band arbitrage.
The method constructs arbitrage-free option surfaces from noisy quotes using Chebyshev bases and a fog post-fit layer.
problem Constructing arbitrage-free option price surfaces from noisy bid-ask quotes.
method Chebyshev tensor bases, linear sampling, no-arbitrage operators, quadratic objective, OSQP solvers, fog post-fit layer, Hamiltonian energy.
result High inside-spread coverage (98-99%) and low no-arbitrage violations (below 1%) in stable periods, controlled leakage in stressed periods.
Paper develops a continuous-time framework for financial markets without stochastic calculus.
problem Developing continuous-time financial models without stochastic calculus.
method A general framework using conditional topologies and pseudo-distance topologies.
result No-arbitrage conditions hold in continuous time if and only if they hold in discrete time.
The study examines a financial model with sticky prices and finds no arbitrage when interest rate is zero.
problem Analyzing financial markets with sticky asset prices and proving no arbitrage conditions.
method Introduced a financial market model with a risky asset following a sticky geometric Brownian motion and a riskless asset with a constant interest rate. Proved no arbitrage conditions and derived pricing equations.
result No arbitrage conditions are met only when the interest rate is zero, and all replicable payoffs are derived under this condition.
Study examines how crypto arbitrage affects XRP price and network correlation.
problem Impact of crypto arbitrage on XRP price and network correlation.
method Examined XRP price fluctuations and correlation tensor spectra of transaction networks across crypto exchanges.
result Arbitrage opportunities across crypto exchanges anti-correlate with XRP price during bubble periods.
We apply Gauge Theory of Arbitrage (GTA) {hep-th/9710148} to derivative pricing. We show how the standard results of Black-Scholes analysis appear from GTA and derive correction to the Black-Scholes equation due to a virtual arbitrage and speculators reaction on it. The model accounts for both violation of the no-arbit…
A new method calculates accurate SABR model option prices and deltas.
problem Inaccurate and arbitrageable SABR model option prices and deltas.
method Gaussian quadrature integration scheme for the normal SABR model.
result Accurate and arbitrage-free SABR model option prices and deltas calculated with 49 points.
Theory of price impact on bond term structure.
problem Understanding price impact in interest rate markets.
method Formulated instantaneous and transient price impact on bonds with different maturities, connecting to no-arbitrage theory.
result Price impact can be embedded in the pricing measure and no-arbitrage preserved.
This paper introduces strategies to maximize arbitrage profits in decentralized exchanges.
problem Maximizing profits from arbitrage loops in decentralized exchanges.
method Three strategies: MaxPrice, MaxMax, and Convex Optimization.
result The Convex Optimization strategy yields the highest monetized arbitrage profit in theory and practice.
A blockchain replaces central counterparties with time-consuming consensus protocols to record the transfer of ownership. This settlement latency slows cross-exchange trading, exposing arbitrageurs to price risk. Off-chain settlement, instead, exposes arbitrageurs to costly default risk. We show with Bitcoin network an…
"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 consider an infinite dimensional optimization problem motivated by mathematical economics. Within the celebrated "Arbitrage Pricing Model", we use probabilistic and functional analytic techniques to show the existence of optimal strategies for investors who maximize their expected utility.
We present a new framework for Hermite fractional financial markets, generalizing the fractional Brownian motion and fractional Rosenblatt markets. Considering pure and mixed Hermite markets, we introduce a strategy-specific arbitrage tax on the rate of transaction volume acceleration of the hedging portfolio as the pr…
The paper develops general, discrete, non-probabilistic market models and minmax price bounds leading to price intervals for European options. The approach provides the trajectory based analogue of martingale-like properties as well as a generalization that allows a limited notion of arbitrage in the market while still…
The paper applies thermodynamics to financial markets to prove no-arbitrage constraints.
problem No arbitrage in financial markets under price impact.
method Stochastic thermodynamics applied to financial trading cycles.
result Proves any round-trip trading strategy yields non-positive expected profit.
Study arbitrage in financial markets with trading restrictions.
problem Arbitrage in financial markets with trading constraints.
method Portfolio optimization problems and discrete-time setup.
result Solvability of portfolio optimization problems equivalent to absence of first kind arbitrage.
This paper studies the optimal investment problem with random endowment in an inventory-based price impact model with competitive market makers. Our goal is to analyze how price impact affects optimal policies, as well as both pricing rules and demand schedules for contingent claims. For exponential market makers prefe…