The fundamental theorem of asset pricing, the hedging problem and maximal claims in financial markets with short sales prohibitions (Q2443185): Difference between revisions

This paper deals with the financial markets with short sales prohibitions. It is supposed that the price processes of the \(N\) risky assets are nonnegative locally bounded \(P\)-semimartingales over a stochastic basis \((\Omega,F,{\mathcal F},P)\), where \({\mathcal F}=({\mathcal F}_{t})_{0\leq t\leq T}\). Let \(S=(S^{ i})_{1\leq i\leq N}\) be the \(\mathbb R^N\)-valued stochastic process representing the prices of the risky assets. If \(X\) is a semimartingale over stochastic basis let us denote by \(L(X)\) the space of predictable processes integrable with respect to \(X\). A vector-valued process \(H=(H^{1},\ldots,H^{N})\) is called an admissible trading strategy if: \(H\in L(S)\); \(H_0=0\); \((H\cdot S)\geq -\alpha\) for some \(\alpha>0\); \(H^{i}\geq0\) for all \(i>d\). Let \({\mathcal M}_{\sup}(S)\) be the set of probability measures \(Q\) on \((\Omega, F)\) such that: \(Q\equiv P\) and for \(1\leq i\leq d\), \(S^{i}\) is a \(Q\)-local martingale and, for \(d< i\leq N\), \(S^{i}\) is a \(Q\)-supermartingale. The author proves that the condition of ``no free lunch'' with vanishing risk under short sales prohibition is fulfilled if and only if \({\mathcal M}_{\sup}(S)\neq\emptyset\). Then the author studies in financial markets with short sales prohibitions where prices are driven by nonnegative locally bounded semimartingales the space of contingent claims that can be super-replicated and perfectly replicated. He investigates the hedging problem in these models and connects it to a properly defined property of maximality of contingent claims.