No arbitrage without semimartingales (Q1024894)

This article attempts to find a general class of processes, which need not to be semimartingales but do not permit arbitrage (such problem arises since just semimartingale processes are well-known to create arbitrage-free financial markets, or, in other words, to be consistent with the concept of ``No Free Lunch With Vanishing Risk'', NFLVR). The idea is to disallow continuous trading, and moreover to require a minimal fixed time between successive trades. This disallows a clustering of trades around a fleeting arbitrage opportunity, such as might occur from a drift process that the random generator cannot ``see''. The main result states that the sum of continuous semimartingale with NFLVR property and with bounded quadratic variation that strictly increases in some special sense, and an adapted càdlàg bounded process, does not have an arbitrage in the class of allowable simple trading strategies, which is called Cheridito class. Some examples are considered, in particular, within the class of Gaussian moving average processes, which includes fractional Brownian motion.