On the semimartingale property of discounted asset-price processes (Q719780)
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English | On the semimartingale property of discounted asset-price processes |
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On the semimartingale property of discounted asset-price processes (English)
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11 October 2011
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Let \(S\) be a \(d\)-dimensional adapted càdlàg process, for which every component is nonnegative. The set of all portfolios that are attainable with initial wealth \(x\), using simple strategies without short-selling, and without ever having negative wealth, is denoted by \(\mathcal{X}(x)\). The authors prove that if ``no arbitrage of the first kind'' holds for \(S\), then \(S\) has to be a semimartingale. As they point out, no arbitrage of the first kind is equivalent to \(\mathcal{X}(1)\) being bounded in probability. This is achieved by proving that in that case there exists a strictly positive supermartingale deflator \(Y\), i.e. a strictly positive supermartingale \(Y\), such that for every portfolio process \(X\), \(YX\) is a supermartingale. It is pointed out that the requirement of \(S\) being nonnegative can be relaxed to \(S\) being locally bounded from below.
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numéraire portfolio
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semimartingales
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buy-and-hold strategies
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no-short-sales constraints
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arbitrage of the first kind
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supermartingale deflators
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