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Large Financial Markets and Asymptotic Arbitrage with Small Transaction Costs

Klein, Irene; Lepinette, Emmanuel; Ostafe, Lavinia
Fonte: Universidade Cornell Publicador: Universidade Cornell
Tipo: Artigo de Revista Científica
Publicado em 02/11/2012 Português
Relevância na Pesquisa
27.24%
We give characterizations of asymptotic arbitrage of the first and second kind and of strong asymptotic arbitrage for large financial markets with small proportional transaction costs $\la_n$ on market $n$ in terms of contiguity properties of sequences of equivalent probability measures induced by $\la_n$--consistent price systems. These results are analogous to the frictionless case. Our setting is simple, each market $n$ contains two assets with continuous price processes. The proofs use quantitative versions of the Halmos--Savage Theorem and a monotone convergence result of nonnegative local martingales. Moreover, we present an example admitting a strong asymptotic arbitrage without transaction costs; but with transaction costs $\la_n>0$ on market $n$ ($\la_n\to0$ not too fast) there does not exist any form of asymptotic arbitrage.

Strong asymptotic arbitrage in the large fractional binary market

Cordero, Fernando; Perez-Ostafe, Lavinia
Fonte: Universidade Cornell Publicador: Universidade Cornell
Tipo: Artigo de Revista Científica
Português
Relevância na Pesquisa
27.24%
We study, from the perspective of large financial markets, the asymptotic arbitrage opportunities in a sequence of binary markets approximating the fractional Black-Scholes model. This approximating sequence was introduced by Sottinen and named fractional binary market. The large financial market under consideration does not satisfy the standard assumptions of the theory of asymptotic arbitrage. For this reason, we follow a constructive approach to show first that a strong type of asymptotic arbitrage exists in the large market without transaction costs. Indeed, with the help of an appropriate version of the law of large numbers and a stopping time procedure, we construct a sequence of self-financing strategies, which leads to the desired result. Next, we introduce, in each small market, proportional transaction costs, and we construct, following a similar argument, a sequence of self-financing strategies providing a strong asymptotic arbitrage when the transaction costs converge fast enough to 0.; Comment: 21 pages

Geometric Arbitrage and Spectral Theory

Farinelli, Simone
Fonte: Universidade Cornell Publicador: Universidade Cornell
Tipo: Artigo de Revista Científica
Publicado em 02/09/2015 Português
Relevância na Pesquisa
27.24%
Geometric Arbitrage Theory reformulates a generic asset model possibly allowing for arbitrage by packaging all assets and their forwards dynamics into a stochastic principal fibre bundle, with a connection whose parallel transport encodes discounting and portfolio rebalancing, and whose curvature measures, in this geometric language, the "instantaneous arbitrage capability" generated by the market itself. The cashflow bundle is the vector bundle associated to this stochastic principal fibre bundle for the natural choice of the vector space fibre. The cashflow bundle carries a stochastic covariant differentiation induced by the connection on the principal fibre bundle. The link between arbitrage theory and spectral theory of the connection Laplacian on the vector bundle is given by the zero eigenspace resulting in a parametrization of all risk neutral measures equivalent to the statistical one. This indicates that a market satisfies the no-free-lunch-with vanishing-risk condition if it is only if $0$ is in the spectrum.; Comment: arXiv admin note: substantial text overlap with arXiv:1406.6805, arXiv:0910.1671

Arbitrage and Hedging in a non probabilistic framework

Alvarez, Alexander; Ferrando, Sebastian; Olivares, Pablo
Fonte: Universidade Cornell Publicador: Universidade Cornell
Tipo: Artigo de Revista Científica
Publicado em 05/03/2011 Português
Relevância na Pesquisa
27.24%
The paper studies the concepts of hedging and arbitrage in a non probabilistic framework. It provides conditions for non probabilistic arbitrage based on the topological structure of the trajectory space and makes connections with the usual notion of arbitrage. Several examples illustrate the non probabilistic arbitrage as well perfect replication of options under continuous and discontinuous trajectories, the results can then be applied in probabilistic models path by path. The approach is related to recent financial models that go beyond semimartingales, we remark on some of these connections and provide applications of our results to some of these models.

Non-arbitrage for Informational Discrete Time Market Models

Choulli, Tahir; Deng, Jun
Fonte: Universidade Cornell Publicador: Universidade Cornell
Tipo: Artigo de Revista Científica
Publicado em 05/07/2014 Português
Relevância na Pesquisa
27.24%
This paper focuses on the stability of the non-arbitrage condition in discrete time market models when some unknown information $\tau$ is partially/fully incorporated into the market. Our main conclusions are twofold. On the one hand, for a fixed market $S$, we prove that the non-arbitrage condition is preserved under a mild condition. On the other hand, we give the necessary and sufficient equivalent conditions on the unknown information $\tau$ to ensure the validity of the non-arbitrage condition for any market. Two concrete examples are presented to illustrate the importance of these conditions, where we calculate explicitly the arbitrage opportunities when they exist.; Comment: 22 pages

Arbitrage Bounds for Prices of Weighted Variance Swaps

Davis, Mark H. A.; Obloj, Jan; Raval, Vimal
Fonte: Universidade Cornell Publicador: Universidade Cornell
Tipo: Artigo de Revista Científica
Português
Relevância na Pesquisa
27.24%
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 them. We find that market quotes for variance swaps are surprisingly close to the model-free lower bounds we determine. We solve the problem by transforming it into an analogous question for a European option with a convex payoff. The lower bound becomes a problem in semi-infinite linear programming which we solve in detail. The upper bound is explicit. We work in a model-independent and probability-free setup. In particular we use and extend F\"ollmer's pathwise stochastic calculus. Appropriate notions of arbitrage and admissibility are introduced. This allows us to establish the usual hedging relation between the variance swap and the 'log contract' and similar connections for weighted variance swaps. Our results take form of a FTAP: we show that the absence of (weak) arbitrage is equivalent to the existence of a classical model which reproduces the observed prices via risk-neutral expectations of discounted payoffs.; Comment: 25 pages...

Spontaneous symmetry breaking of arbitrage

Choi, Jaehyung
Fonte: Universidade Cornell Publicador: Universidade Cornell
Tipo: Artigo de Revista Científica
Português
Relevância na Pesquisa
27.24%
We introduce the concept of spontaneous symmetry breaking to arbitrage modeling. In the model, the arbitrage strategy is considered as being in the symmetry breaking phase and the phase transition between arbitrage mode and no-arbitrage mode is triggered by a control parameter. We estimate the control parameter for momentum strategy with real historical data. The momentum strategy aided by symmetry breaking shows stronger performance and has a better risk measure than the naive momentum strategy in U.S. and South Korean markets.; Comment: 23 pages, 6 figures; Published version

No Arbitrage Conditions For Simple Trading Strategies

Bayraktar, Erhan; Sayit, Hasanjan
Fonte: Universidade Cornell Publicador: Universidade Cornell
Tipo: Artigo de Revista Científica
Português
Relevância na Pesquisa
27.24%
Strict local martingales may admit arbitrage opportunities with respect to the class of simple trading strategies. (Since there is no possibility of using doubling strategies in this framework, the losses are not assumed to be bounded from below.) We show that for a class of non-negative strict local martingales, the strong Markov property implies the no arbitrage property with respect to the class of simple trading strategies. This result can be seen as a generalization of a similar result on three dimensional Bessel process in [3]. We also pro- vide no arbitrage conditions for stochastic processes within the class of simple trading strategies with shortsale restriction.; Comment: Keywords: Simple trading strategies. Arbitrage. Sticky processes. Short-Sales Restrictions

Weak and strong no-arbitrage conditions for continuous financial markets

Fontana, Claudio
Fonte: Universidade Cornell Publicador: Universidade Cornell
Tipo: Artigo de Revista Científica
Português
Relevância na Pesquisa
27.24%
We propose a unified analysis of a whole spectrum of no-arbitrage conditions for financial market models based on continuous semimartingales. In particular, we focus on no-arbitrage conditions weaker than the classical notions of No Arbitrage and No Free Lunch with Vanishing Risk. We provide a complete characterisation of the considered no-arbitrage conditions, linking their validity to the characteristics of the discounted asset price process and to the existence and the properties of (weak) martingale deflators, and review classical as well as recent results.; Comment: 28 pages