Related papers: Arbitrage without borrowing or short selling?
We consider a continuous-time financial market with no arbitrage and no transactions costs. In this setting, we introduce two types of perpetual contracts, one in which the payoff to the long side is a fixed function of the underlyers and…
Within a common arbitrage-free semimartingale financial market we consider the problem of determining all Nash equilibrium investment strategies for $n$ agents who try to maximize the expected utility of their relative wealth. The utility…
One of the crucial problems in mathematical finance is to mitigate the risk of a financial position by setting up hedging positions of eligible financial securities. This leads to focusing on set-valued maps associating to any financial…
We revisit mean-risk portfolio selection in a one-period financial market where risk is quantified by a positively homogeneous risk measure $\rho$. We first show that under mild assumptions, the set of optimal portfolios for a fixed return…
We consider a stochastic game-theoretic model of a discrete-time asset market with short-lived assets and endogenous asset prices. We prove that the strategy which invests in the assets proportionally to their expected relative payoffs…
We consider the optimal trade execution strategies for a large portfolio of single stocks proposed by Almgren (2003). This framework accounts for a nonlinear impact of trades on average market prices. The results of Almgren (2003) are based…
We develop a novel framework for computing the total valuation adjustment (XVA) of a European claim accounting for funding costs, counterparty credit risk, and collateralization. Based on no-arbitrage arguments, we derive the nonlinear…
The general method is proposed for constructing a family of martingale measures for a wide class of evolution of risky assets. The sufficient conditions are formulated for the evolution of risky assets under which the family of equivalent…
In the context of a general semimartingale model of a complete market, we aim at answering the following question: How much is an investor willing to pay for learning some inside information that allows to achieve arbitrage? If such a value…
We study markets with no riskless (safe) asset. We derive the corresponding Black-Scholes-Merton option pricing equations for markets where there are only risky assets which have the following price dynamics: (i) continuous diffusions; (ii)…
Geometric arbitrage theory reformulates a generic asset model possibly allowing for arbitrage by packaging all asset and their forward dynamics into a stochastic principal fibre bundle, with a connection whose parallel transport encodes…
We revisit optimal execution of an active portfolio in the presence of slippage (aka linear, proportional, or absolute-value) costs. Market efficiency implies a close balance between active alphas and trading costs, so even small changes to…
We consider two risk-averse financial agents who negotiate the price of an illiquid indivisible contingent claim in an incomplete semimartingale market environment. Under the assumption that the agents are exponential utility maximizers…
This paper develops a comprehensive theoretical framework that imports concepts from stochastic thermodynamics to model price impact and characterize the feasibility of round-trip arbitrage in financial markets. A trading cycle is treated…
We consider the Brownian market model and the problem of expected utility maximization of terminal wealth. We, specifically, examine the problem of maximizing the utility of terminal wealth under the presence of transaction costs of a…
Statistical arbitrage exploits temporal price differences between similar assets. We develop a framework to jointly identify similar assets through factors, identify mispricing and form a trading policy that maximizes risk-adjusted…
This paper supplies two possible resolutions of Fortune's (2000) margin-loan pricing puzzle. Fortune (2000) noted that the margin loan interest rates charged by stock brokers are very high in relation to the actual (low) credit risk and the…
We study the continuous time Kyle-Back model with a risk averse informed trader.We show that in a market with multiple assets and non-Gaussian prices an equilibrium exists. The equilibrium is constructed by considering a Fokker-Planck…
The notion that economies should normally be in equilibrium is by now well-established; equally well-established is that economies are almost never precisely in equilibrium. Using a very general formulation, we show that under dynamics that…
We constructively prove the existence of time-discrete consumption processes for stochastic money accounts that fulfill a pre-specified positively homogeneous projection property (PHPP) and let the account always be positive and exactly…