A note on arbitrage, approximate arbitrage and the fundamental theorem of asset pricing

DOI10.1080/17442508.2014.895358zbMATH Open1337.91153arXiv1311.7027OpenAlexW2071244694MaRDI QIDQ2811116FDOQ2811116

Authors: Claudio Fontana 

Publication date: 10 June 2016

Published in: Stochastics (Search for Journal in Brave)

Abstract: We provide a critical analysis of the proof of the fundamental theorem of asset pricing given in the paper "Arbitrage and approximate arbitrage: the fundamental theorem of asset pricing" by B. Wong and C.C. Heyde (Stochastics, 2010) in the context of incomplete It^o-process models. We show that their approach can only work in the known case of a complete financial market model and give an explicit counterexample.

Full work available at URL: https://arxiv.org/abs/1311.7027

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zbMATH Keywords

fundamental theorem of asset pricingmartingale deflatorarbitragecomplete marketequivalent local martingale measureItô-process

Mathematics Subject Classification ID

Martingales with continuous parameter (60G44) Stochastic integrals (60H05) Applications of stochastic analysis (to PDEs, etc.) (60H30) Financial applications of other theories (91G80)

Cites Work

• The fundamental theorem of asset pricing for unbounded stochastic processes
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• The two fundamental theorems of asset pricing for a class of continuous-time financial markets
• Diffusion-based models for financial markets without martingale measures
• A necessary and sufficient condition for absence of arbitrage with tame portfolios
• NO-FREE-LUNCH EQUIVALENCES FOR EXPONENTIAL LÉVY MODELS UNDER CONVEX CONSTRAINTS ON INVESTMENT

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