Related papers: Arbitrage in markets with bid-ask spreads

Motivated by applications to bond markets, we propose a multivariate framework for discrete time financial markets with proportional transaction costs and a countable infinite number of tradable assets. We show that the no-arbitrage of…

We introduce a discrete binary tree for pricing contingent claims with the underlying security prices exhibiting history dependence characteristic of that induced by market microstructure phenomena. Example dependencies considered include…

The goal of this work is to study binary market models with transaction costs, and to characterize their arbitrage opportunities. It has been already shown that the absence of arbitrage is related to the existence of \lambda-consistent…

We study an efficient strategy based on finite elements to value spread options on commodities whose underlying assets follow a dynamic described by a certain class of two-dimensional Levy models by solving their associated partial…

We develop a theory which applies to any market dynamics that satisfy a fair market assumption on the nullity of the average profit of simple market making strategies. We show that for any such fair market, there exists a martingale fair…

Standard jump-diffusion models assume independence between jumps and diffusion components. We develop a multi-type jump-diffusion model where jump occurrence and magnitude depend on contemporaneous diffusion movements. Unlike previous…

This paper addresses the question of how an arbitrage-free semimartingale model is affected when stopped at a random horizon. We focus on No-Unbounded-Profit-with-Bounded-Risk (called NUPBR hereafter) concept, which is also known in the…

We apply Geometric Arbitrage Theory to obtain results in mathematical finance for credit markets, which do not need stochastic differential geometry in their formulation. We obtain closed form equations involving default intensities and…

An arbitrage strategy allows a financial agent to make certain profit out of nothing, i.e., out of zero initial investment. This has to be disallowed on economic basis if the market is in equilibrium state, as opportunities for riskless…

We unify and establish equivalence between the pathwise and the quasi-sure approaches to robust modelling of financial markets in discrete time. In particular, we prove a Fundamental Theorem of Asset Pricing and a Superhedging Theorem,…

This paper presents an axiomatic scheme for interest rate models in discrete time. We take a pricing kernel approach, which builds in the arbitrage-free property and provides a link to equilibrium economics. We require that the pricing…

This papers addresses the stock option pricing problem in a continuous time market model where there are two stochastic tradable assets, and one of them is selected as a num\'eraire. It is shown that the presence of arbitrarily small…

In this paper, we present a quantum version of some portions of Mathematical Finance, including theory of arbitrage, asset pricing, and optional decomposition in financial markets based on finite dimensional quantum probability spaces. As…

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…

We consider the fundamental theorem of asset pricing (FTAP) and hedging prices of options under non-dominated model uncertainty and portfolio constrains in discrete time. We first show that no arbitrage holds if and only if there exists…

A stock market is called diverse if no stock can dominate the market in terms of relative capitalization. On one hand, this natural property leads to arbitrage in diffusion models under mild assumptions. On the other hand, it is also easy…

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…

The purpose of this work is to explore the role that 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…

This research extends the conventional concepts of the bid--ask spread (BAS) and mid-price to include the total market order book bid--ask spread (TMOBBAS) and the global mid-price (GMP). Using high-frequency trading data, we investigate…

We use a continuous version of the standard deviation premium principle for pricing in incomplete equity markets by assuming that the investor issuing an unhedgeable derivative security requires compensation for this risk in the form of a…