On optimal arbitrage
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Publication:990375
DOI10.1214/09-AAP642zbMATH Open1206.60055arXiv1010.4987MaRDI QIDQ990375FDOQ990375
Authors: Daniel Fernholz, Ioannis Karatzas 
Publication date: 1 September 2010
Published in: The Annals of Applied Probability (Search for Journal in Brave)
Abstract: In a Markovian model for a financial market, we characterize the best arbitrage with respect to the market portfolio that can be achieved using nonanticipative investment strategies, in terms of the smallest positive solution to a parabolic partial differential inequality; this is determined entirely on the basis of the covariance structure of the model. The solution is intimately related to properties of strict local martingales and is used to generate the investment strategy which realizes the best possible arbitrage. Some extensions to non-Markovian situations are also presented.
Full work available at URL: https://arxiv.org/abs/1010.4987
Recommendations
maximum principlediffusionsportfoliosparabolic operatorsarbitragestrict local martingalesexit measures for supermartingalesFichera drift
Portfolio theory (91G10) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Maximum principles in context of PDEs (35B50) Martingales with continuous parameter (60G44)
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