Related papers: Arbitrage strategy
We show that a trader, who starts with no initial wealth and is not allowed to borrow money or short sell assets, is theoretically able to attain positive wealth by continuous trading, provided that she has perfect foresight of future asset…
We construct and study market models admitting optimal arbitrage. We say that a model admits optimal arbitrage if it is possible, in a zero-interest rate setting, starting with an initial wealth of 1 and using only positive portfolios, to…
This short note provides a systematic construction of market models without unbounded profits but with arbitrage opportunities.
We show that in a financial market given by semimartingales an arbitrage opportunity, provided it exists, can only be exploited through short selling. This finding provides a theoretical basis for differences in regulation for financial…
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…
"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…
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…
Generalized statistical arbitrage concepts are introduced corresponding to trading strategies which yield positive gains on average in a class of scenarios rather than almost surely. The relevant scenarios or market states are specified via…
In practice there are temporary arbitrage opportunities arising from the fact that prices for a given asset at different stock exchanges are not instantaneously the same. We will show that even in such an environment there exists a…
In this paper we ask whether, given a stock market and an illiquid derivative, there exists arbitrage-free prices at which an utility-maximizing agent would always want to buy the derivative, irrespectively of his own initial endowment of…
In a discrete-time setting, we study arbitrage concepts in the presence of convex trading constraints. We show that solvability of portfolio optimization problems is equivalent to absence of arbitrage of the first kind, a condition weaker…
This paper studies arbitrage pricing theory in financial markets with implicit transaction costs. We extend the existing theory to include the more realistic possibility that the price at which the investors trade is dependent on the traded…
In this study we prove the existence of statistical arbitrage opportunities in the Black-Scholes framework by considering trading strategies that consists of borrowing from the risk free rate and taking a long position in the stock until it…
We consider a trader who aims to liquidate a large position in the presence of an arbitrageur who hopes to profit from the trader's activity. The arbitrageur is uncertain about the trader's position and learns from observed price…
We explore a nuance to 'no arbitrage' in relation to 'information efficiency': acting immediately on an arbitrage is sometimes suboptimal; in such cases optimised trading can suppress the anticipation of predictable risk-outcomes, thereby…
This note develops an arbitrage theory for a discrete-time market model without the assumption of the existence of a num\'eraire asset. Fundamental theorems of asset pricing are stated and proven in this context. The distinction between the…
We study arbitrage opportunities, market viability and utility maximization in market models with an insider. Assuming that an economic agent possesses from the beginning an additional information in the form of a random variable G, which…
Opportunities for stochastic arbitrage in an options market arise when it is possible to construct a portfolio of options which provides a positive option premium and which, when combined with a direct investment in the underlying asset,…
We show that with suitable restrictions on allowable trading strategies, one has no arbitrage in settings where the traditional theory would admit arbitrage possibilities. In particular, price processes that are not semimartingales are…
We derive the arbitrage gains or, equivalently, Loss Versus Rebalancing (LVR) for arbitrage between \textit{two imperfectly liquid} markets, extending prior work that assumes the existence of an infinitely liquid reference market. Our…