Related papers: Instantaneous Arbitrage and the CAPM
It has been assumed that arbitrage profits are not possible in efficient markets, because future prices are not predictable. Here we show that predictability alone is not a sufficient measure of market efficiency. We instead propose to…
This paper investigates the equilibrium portfolio selection for smooth ambiguity preferences in a continuous-time market. The investor is uncertain about the risky asset's drift term and updates the subjective belief according to the…
Although the valuation of life contingent assets has been thoroughly investigated under the framework of mathematical statistics, little financial economics research pays attention to the pricing of these assets in a non-arbitrage, complete…
We show that the lack of arbitrage in a model with both fixed and proportional transaction costs is equivalent to the existence of a family of absolutely continuous single-step probability measures, together with an adapted process with…
This paper completes the analysis of Choulli et al. Non-Arbitrage up to Random Horizons and after Honest Times for Semimartingale Models and contains two principal contributions. The first contribution consists in providing and analysing…
In this paper an arbitrage strategy is constructed for the modified Black-Scholes model driven by fractional Brownian motion or by a time changed fractional Brownian motion, when the volatility is stochastic. This latter property allows the…
This paper introduces and analyzes \emph{defensive rebalancing}, a novel mechanism for protecting constant-function market makers (CFMMs) from value leakage due to arbitrage. A \emph{rebalancing} transfers assets directly from one CFMM's…
In most cases, insurance contracts are linked to the financial markets, such as through interest rates or equity-linked insurance products. To motivate an evaluation rule in these hybrid markets, Artzner et al. (2022) introduced the notion…
We argue that contemporary stock market designs are, due to traders' inability to fully express their preferences over the execution times of their orders, prone to latency arbitrage. In turn, we propose a new order type which allows…
We study continuous-time portfolio choice with nonlinear payoffs under smooth ambiguity and Bayesian learning. We develop a general framework for dynamic, non-concave asset allocation that accommodates nonlinear payoffs, broad utility…
This paper develops a model that incorporates the presence of stochastic arbitrage explicitly in the Black--Scholes equation. Here, the arbitrage is generated by a stochastic bubble, which generalizes the deterministic arbitrage model…
We consider continuous-time consensus systems whose interactions satisfy a form or reciprocity that is not instantaneous, but happens over time. We show that these systems have certain desirable properties: They always converge…
This paper does not suppose a priori that the evolution of the price of a financial asset is a semimartingale. Since possible strategies of investors are self-financing, previous prices are forced to be finite quadratic variation processes.…
We consider a conditional factor model for a multivariate portfolio of United States equities in the context of analysing a statistical arbitrage trading strategy. A state space framework underlies the factor model whereby asset returns are…
Prices of tradables can only be expressed relative to each other at any instant of time. This fundamental fact should therefore also hold for contigent claims, i.e. tradable instruments, whose prices depend on the prices of other tradables.…
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…
We derive deterministic criteria for the existence and non-existence of equivalent (local) martingale measures for financial markets driven by multi-dimensional time-inhomogeneous diffusions. Our conditions can be used to construct…
We consider an optimal liquidation problem with instantaneous price impact and stochastic resilience for small instantaneous impact factors. Within our modelling framework, the optimal portfolio process converges to the solution of an…
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…
We establish a quantitative version of the classical Halmos-Savage Theorem for convex, potentially non-dominated sets of probability measures and its dual counterpart, generalizing previous quantitative versions. These results are then used…