Arbitrage and investment opportunities (Q5950462)

This paper deals with a general financial model in which any investment opportunity is described in terms of cash flows that it generates. The investment opportunities are assumed to be quite general. The time horizon is not supposed to be finite. The authors don't assume that there exists a numéraire, enabling investors to transfer wealth from one date to another and even if such possibilities exist, the authors don't assume that the lending rate is equal to the borrowing rate or that the investors have possibilities to borrow. In this general model the assumption of no-arbitrage is equivalent to the existence of a normalization process such that the ``net present value'' of any available investment opportunity is nonpositive. Then this general result is applied to specific financial market models and mainly financial models with frictions like imperfections on the numéraire, proportional transaction costs, short sale constraints, convex cone constraints, no borrowing or different borrowing and lending rates. A characterization of the no-arbitrage condition in these imperfect models is obtained from which it is easy to derive a pricing formulae for contingent claims.