Trajectory-based models, arbitrage and continuity (Q2806359)

Instead of starting with a probability space \((\Omega, {\mathcal F}, ({\mathcal F}_{t\geq 0}, P))\) and modelling the stock as a stochastic process \(X\), the authors propose to concentrate on a trajectory space \({\mathcal J}\in {\mathcal D}[0,T]\), where the latter is the set of functions \(x:[0,T]\to \mathbb R\) which are right continuous with left limits.NEWLINENEWLINEThe proposed approach focuses on the set \({\mathcal J}\) (not on a probability \(P\) to model the market -- the classical paradigm), which is conveniently treated as a metric space \(({\mathcal J},d)\). Within this general view, the paper deals only with arbitrage notions. One of the main results states that general trajectory-based models have no free lunch with vanishing risk.