Asymptotic exponential arbitrage and utility-based asymptotic arbitrage in Markovian models of financial markets (Q2355115): Difference between revisions

The authors consider a discrete-time infinite horizon financial market model in which the logarithm of the stock price \(X_t\) is a time discretization of a stochastic differential equation: \[ X_t-X_{t-1}=\mu(X_{t-1})+\sigma (X_{t-1})\epsilon_t. \] Using ergodic results on Markov chains and tools of large deviations theory, the authors prove the existence of investment opportunities producing an exponentially growing profit with probability tending to \(1\) geometrically fast. Furthermore, they discuss asymptotic arbitrage in the expected utility sense and its relationship to the model considered.