Finitely Additive Probabilities and the Fundamental Theorem of Asset Pricing

DOI10.1007/978-3-642-03479-4_2zbMATH Open1217.91221arXiv0911.5503OpenAlexW2132055867MaRDI QIDQ3000874FDOQ3000874

Authors: Constantinos Kardaras 

Publication date: 31 May 2011

Published in: Contemporary Quantitative Finance (Search for Journal in Brave)

Abstract: This work aims at a deeper understanding of the mathematical implications of the economically-sound condition of absence of arbitrages of the first kind in a financial market. In the spirit of the Fundamental Theorem of Asset Pricing (FTAP), it is shown here that absence of arbitrages of the first kind in the market is equivalent to the existence of a finitely additive probability, weakly equivalent to the original and only locally countably additive, under which the discounted wealth processes become "local martingales". The aforementioned result is then used to obtain an independent proof of the FTAP of Delbaen and Schachermayer. Finally, an elementary and short treatment of the previous discussion is presented for the case of continuous-path semimartingale asset-price processes.

Full work available at URL: https://arxiv.org/abs/0911.5503

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Mathematics Subject Classification ID

Generalizations of martingales (60G48) Financial applications of other theories (91G80)

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• THE NUMÉRAIRE PROPERTY AND LONG-TERM GROWTH OPTIMALITY FOR DRAWDOWN-CONSTRAINED INVESTMENTS
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