Related papers: Exploiting arbitrage requires short selling
We propose a simple market model where agents trade different types of products with each other by using money, relying only on local information. Value fluctuations of single products, combined with the condition of maximum profit in…
In an incomplete market setting, we consider two financial agents, who wish to price and trade a non-replicable contingent claim. Assuming that the agents are utility maximizers, we propose a transaction price which is a result of the…
Contrary to the claims made by several authors, a financial market model in which the price of a risky security follows a reflected geometric Brownian motion is not arbitrage-free. In fact, such models violate even the weakest no-arbitrage…
We consider an infinite dimensional optimization problem motivated by mathematical economics. Within the celebrated "Arbitrage Pricing Model", we use probabilistic and functional analytic techniques to show the existence of optimal…
A market model with $d$ assets in discrete time is considered where trades are subject to proportional transaction costs given via bid-ask spreads, while the existence of a num\`eraire is not assumed. It is shown that robust no arbitrage…
We study the behavior of simple models for financial markets with widely spread frequency either in the trading activity of agents or in the occurrence of basic events. The generic picture of a phase transition between information efficient…
A financial market is called "diverse" if no single stock is ever allowed to dominate the entire market in terms of relative capitalization. In the context of the standard Ito-process model initiated by Samuelson (1965) we formulate this…
A range of empirical puzzles in finance has been explained as a consequence of traders being averse to ambiguity. Ambiguity averse traders can behave in financial portfolio problems in ways that cannot be rationalized as maximizing…
We analyze an optimal trade execution problem in a financial market with stochastic liquidity. To this end we set up a limit order book model in continuous time. Both order book depth and resilience are allowed to evolve randomly in time.…
We study information elicitation in cost-function-based combinatorial prediction markets when the market maker's utility for information decreases over time. In the sudden revelation setting, it is known that some piece of information will…
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…
The choice of admissible trading strategies in mathematical modelling of financial markets is a delicate issue, going back to Harrison and Kreps (1979). In the context of optimal portfolio selection with expected utility preferences this…
We study the optimal control of storage which is used for arbitrage, i.e. for buying a commodity when it is cheap and selling it when it is expensive. Our particular concern is with the management of energy systems, although the results are…
We consider a general small-scale market for agent-to-agent resource sharing, in which each agent could either be a server (seller) or a client (buyer) in each time period. In every time period, a server has a certain amount of resources…
The pricing and hedging of a general class of options (including American, Bermudan and European options) on multiple assets are studied in the context of currency markets where trading is subject to proportional transaction costs, and…
In many search markets, advance interim contracts include an explicit right to renege, granting one party the option to switch to more attractive matches that emerge later in the search process. This paper studies the design and welfare…
We point out some major drawbacks in random trading market models and propose a realistic modification which overcomes such drawbacks through `sensible trading'. We apply such trading policy in different situations: a) Agents with zero…
We consider a financial market in which traders potentially face restrictions in trading some of the available securities. Traders are heterogeneous with respect to their beliefs and risk profiles, and the market is assumed thin: traders…
We present a machine learning approach for finding minimal equivalent martingale measures for markets simulators of tradable instruments, e.g. for a spot price and options written on the same underlying. We extend our results to markets…
The present paper deals with the characterization of no-arbitrage properties of a continuous semimartingale. The first main result, Theorem \refMainTheoremCharNA, extends the no-arbitrage criterion by Levental and Skorohod [Ann. Appl.…