Related papers: Exploiting arbitrage requires short selling

This study provides a practical introduction to high-frequency trading in blockchain-based currency markets. These types of markets have some specific characteristics that differentiate them from the stock markets, such as a large number of…

Traders buy and sell financial instruments in hopes of making profit, and brokers are responsible for the transaction. There are several hypotheses and conspiracy theories arguing that in some situations, brokers want their traders to lose…

This work aims at a deeper understanding of the mathematical implications of the economically-sound condition of absence of arbitrages of the first kind in a financial market. In the spirit of the Fundamental Theorem of Asset Pricing…

We consider a utility-maximization problem in a general semimartingale financial model, subject to constraints on the number of shares held in each risky asset. These constraints are modeled by predictable convex-set-valued processes whose…

Statistical arbitrage is a class of financial trading strategies using mean reversion models. The corresponding techniques rely on a number of assumptions which may not hold for general non-stationary stochastic processes. This paper…

We show that coherent risk measures are ineffective in curbing the behaviour of investors with limited liability or excessive tail-risk seeking behaviour if the market admits statistical arbitrage opportunities which we term…

We consider the pricing problem facing a seller of a contingent claim. We assume that this seller has some general level of partial information, and that he is not allowed to sell short in certain assets. This pricing problem, which is our…

We derive behavioral finance option pricing formulas consistent with the rational dynamic asset pricing theory. In the existing behavioral finance option pricing formulas, the price process of the representative agent is not 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…

Financial and gambling markets are ostensibly similar and hence strategies from one could potentially be applied to the other. Financial markets have been extensively studied, resulting in numerous theorems and models, while gambling…

We contrast Arbitrage Pricing Theory (APT), the theoretical basis for the development of financial instruments, with a dynamical picture of an interacting market, in a simple setting. The proliferation of financial instruments apparently…

The existence of time-lagged cross-correlations between the returns of a pair of assets, which is known as the lead-lag relationship, is a well-known stylized fact in financial econometrics. Recently some continuous-time models have been…

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…

Quadratic hedging of option payoffs generates the variance optimal martingale measure. When an option features an exercise policy and its cash flows are hedged according to this approach, it may be tempting to optimize such a policy under…

In the past decades, advanced probabilistic methods have had significant impact on the field of finance, both in academia and in the financial industry. Conversely, financial questions have stimulated new research directions in probability.…

A standing assumption in the literature on proportional transaction costs is efficient friction. Together with robust no free lunch with vanishing risk, it rules out strategies of infinite variation, as they usually appear in frictionless…

We revisit the classical topic of quadratic and linear mean-variance equilibria with both financial and real assets. The novelty of our results is that they are the first allowing for equilibrium prices driven by general semimartingales and…

Consider a market of competing model providers selling query access to models with varying costs and capabilities. Customers submit problem instances and are willing to pay up to a budget for a verifiable solution. An arbitrageur…

This paper offers a systematic investigation on the existence of equivalent local martingale deflators, which are multiplicative special semimartingales, in financial markets given by positive semimartingales. In particular, it shows that…

Reduced installation and operating costs give energy storage systems an opportunity to participate actively and profitably in electricity markets. In addition to providing ancillary services, energy storage systems can also arbitrage…