A new perspective on the fundamental theorem of asset pricing for large financial markets

DOI10.1137/S0040585X97T987879zbMATH Open1352.91035arXiv1412.7562MaRDI QIDQ3178725FDOQ3178725

Authors: Christa Cuchiero, Irene Klein, Josef Teichmann 

Publication date: 7 December 2016

Published in: Theory of Probability & Its Applications (Search for Journal in Brave)

Abstract: In the context of large financial markets we formulate the notion of emph{no asymptotic free lunch with vanishing risk} (NAFLVR), under which we can prove a version of the fundamental theorem of asset pricing (FTAP) in markets with an (even uncountably) infinite number of assets, as it is for instance the case in bond markets. We work in the general setting of admissible portfolio wealth processes as laid down by Y. Kabanov cite{kab:97} under a substantially relaxed concatenation property and adapt the FTAP proof variant obtained in cite{CT:14} for the classical small market situation to large financial markets. In the case of countably many assets, our setting includes the large financial market model considered by M. De Donno et al. cite{DGP:05} and its abstract integration theory. The notion of (NAFLVR) turns out to be an economically meaningful "no arbitrage" condition (in particular not involving weak-$*$-closures), and, (NAFLVR) is equivalent to the existence of a separating measure. Furthermore we show -- by means of a counterexample -- that the existence of an equivalent separating measure does not lead to an equivalent $sigma$-martingale measure, even in a countable large financial market situation.

Full work available at URL: https://arxiv.org/abs/1412.7562

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zbMATH Keywords

fundamental theorem of asset pricingEmery topologylarge financial marketsno free lunch with vanishing risk (NFLVR) conditionpredictable uniform tightness (P-UT) property

Mathematics Subject Classification ID

Generalizations of martingales (60G48) Microeconomic theory (price theory and economic markets) (91B24) Actuarial science and mathematical finance (91G99)

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