Arbitrage and deflators in illiquid markets

DOI10.1007/S00780-009-0118-8zbMATH Open1303.91080arXiv0807.2526OpenAlexW3103585941MaRDI QIDQ483698FDOQ483698

Authors: Teemu Pennanen 

Publication date: 17 December 2014

Published in: Finance and Stochastics (Search for Journal in Brave)

Abstract: This paper presents a stochastic model for discrete-time trading in financial markets where trading costs are given by convex cost functions and portfolios are constrained by convex sets. The model does not assume the existence of a cash account/numeraire. In addition to classical frictionless markets and markets with transaction costs or bid-ask spreads, our framework covers markets with nonlinear illiquidity effects for large instantaneous trades. In the presence of nonlinearities, the classical notion of arbitrage turns out to have two equally meaningful generalizations, a marginal and a scalable one. We study their relations to state price deflators by analyzing two auxiliary market models describing the local and global behavior of the cost functions and constraints.

Full work available at URL: https://arxiv.org/abs/0807.2526

Recommendations

• Arbitrage theory for non convex financial market models
• Illiquid financial market models and absence of arbitrage
• Convex duality in optimal investment and contingent claim valuation in illiquid markets
• Superhedging in illiquid markets
• scientific article; zbMATH DE number 1867099

zbMATH Keywords

illiquidityarbitrageportfolio constraintsclaim processesdeflators

Mathematics Subject Classification ID

Applications of functional analysis in optimization, convex analysis, mathematical programming, economics (46N10) Convex sets in topological vector spaces (aspects of convex geometry) (52A07) Microeconomic theory (price theory and economic markets) (91B24) Stochastic models in economics (91B70)

Cites Work

• Convex Analysis
• Stochastic finance. An introduction in discrete time
• The Dalang-Morton-Willinger theorem under cone constraints.
• Liquidity risk and arbitrage pricing theory
• Martingales and arbitage in securities markets with transaction costs
• The mathematics of arbitrage
• Integrals which are convex functionals
• Superhedging in illiquid markets
• The Fundamental Theorem of Asset Pricing under Proportional Transaction Costs in Finite Discrete Time
• An Extended Version of the Dalang--Morton--Willinger Theorem under Portfolio Constraints
• Convex duality in constrained portfolio optimization
• Hedging and liquidation under transaction costs in currency markets
• On Esscher Transforms in Discrete Finance Models
• Mathematical methods of game and economic theory
• Hedging and Portfolio Optimization in Financial Markets with a Large Trader
• The cost of illiquidity and its effects on hedging
• MODELING LIQUIDITY EFFECTS IN DISCRETE TIME
• Title not available (Why is that?)
• The fundamental theorem of asset pricing with cone constraints
• A Hilbert space proof of the fundamental theorem of asset pricing in finite discrete time
• Duality and stability in extremum problems involving convex functions
• Hedging of claims with physical delivery under convex transaction costs
• The Kreps--Yan theorem for \(L^\infty\)
• A sample-path approach to optimal position liquidation
• On Feedback Effects from Hedging Derivatives
• On the closedness of sums of convex cones in \(L^0\) and the robust no-arbitrage property
• Martingale selection problem and asset pricing in finite discrete time
• Arbitrage and state price deflators in a general intertemporal framework
• No arbitrage conditions and liquidity
• Title not available (Why is that?)
• TAX BASIS AND NONLINEARITY IN CASH STREAM VALUATION
• Cash Stream Valuation In the Face of Transaction Costs and Taxes
• Title not available (Why is that?)
• On The Fundamental Theorem Of Asset Pricing: Random Constraints And Bang‐Bang No‐Arbitrage Criteria
• Arbitrage and investment opportunities
• Link-save trading

Cited In (22)

• Risk measures beyond frictionless markets
• Arbitrage and the flattening effect of large numbers
• Asset pricing in an imperfect world
• Financially constrained arbitrage in illiquid markets
• Optimal investment and contingent claim valuation in illiquid markets
• Arbitrage and state price deflators in a general intertemporal framework
• Stochastic programs without duality gaps
• On derivatives with illiquid underlying and market manipulation
• Superhedging in illiquid markets
• Dual representation of superhedging costs in illiquid markets
• Hedging, arbitrage and optimality with superlinear frictions
• Duality and optimality conditions in stochastic optimization and mathematical finance
• GOOD DEAL BOUNDS WITH CONVEX CONSTRAINTS
• Reduced form modeling of limit order markets
• Illiquid financial market models and absence of arbitrage
• Convex duality in optimal investment under illiquidity
• Introduction to convex optimization in financial markets
• Fundamental theorem of asset pricing with acceptable risk in markets with frictions
• NO MARGINAL ARBITRAGE OF THE SECOND KIND FOR HIGH PRODUCTION REGIMES IN DISCRETE TIME PRODUCTION–INVESTMENT MODELS WITH PROPORTIONAL TRANSACTION COSTS
• Quasi-sure essential supremum and applications to finance
• Convex duality in optimal investment and contingent claim valuation in illiquid markets
• No-arbitrage pricing for dividend-paying securities in discrete-time markets with transaction costs

This page was built for publication: Arbitrage and deflators in illiquid markets

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q483698)