103,168 research outputs found
Asymptotic proportion of arbitrage points in fractional binary markets
A fractional binary market is an approximating sequence of binary models for
the fractional Black-Scholes model, which Sottinen constructed by giving an
analogue of the Donsker's theorem. In a binary market the arbitrage condition
can be expressed as a condition on the nodes of a binary tree. We call
"arbitrage points" the points in the binary tree which verify such an arbitrage
condition and "arbitrage paths" the paths in the binary tree which cross at
least one arbitrage point. Using this terminology, a binary market admits
arbitrage if and only if there is at least one arbitrage point in the binary
tree or equivalently if there is at least one arbitrage path. Following the
lines of Sottinen, who showed that the arbitrage persists in the fractional
binary market, we further prove that starting from any point in the tree, we
can reach an arbitrage point. This implies that, in the limit, there is an
infinite number of arbitrage points. Next, we provide an in-depth analysis of
the asymptotic proportion of arbitrage points at asymptotic levels and of
arbitrage paths in the fractional binary market. All these results are obtained
by studying a rescaled disturbed random walk. We moreover show that, when
is close to , with probability a path in the binary tree crosses an
infinite number of arbitrage points. In particular, for such , the
asymptotic proportion of arbitrage paths is equal to
Market models with optimal arbitrage
We construct and study market models admitting optimal arbitrage. We say that
a model admits optimal arbitrage if it is possible, in a zero-interest rate
setting, starting with an initial wealth of 1 and using only positive
portfolios, to superreplicate a constant c>1. The optimal arbitrage strategy is
the strategy for which this constant has the highest possible value. Our
definition of optimal arbitrage is similar to the one in Fernholz and Karatzas
(2010), where optimal relative arbitrage with respect to the market portfolio
is studied. In this work we present a systematic method to construct market
models where the optimal arbitrage strategy exists and is known explicitly. We
then develop several new examples of market models with arbitrage, which are
based on economic agents' views concerning the impossibility of certain events
rather than ad hoc constructions. We also explore the concept of fragility of
arbitrage introduced in Guasoni and Rasonyi (2012), and provide new examples of
arbitrage models which are not fragile in this sense
Are There Arbitrage Opportunities in Credit Derivatives Markets? A New Test and an Application to the Case of CDS and ASPs
This paper analyzes possible arbitrage opportunities in credit derivatives markets using selffinancing strategies combining Credit Default Swaps and Asset Swaps Packages. We present a new statistical arbitrage test based on the subsampling methodology which has lower Type I error than existing alternatives. Using four different databases covering the period from 2005 to 2009, long-run (cointegration) and statistical arbitrage analysis are performed. Before the subprime crisis, we find long-run arbitrage opportunities in 26% of the cases and statistical arbitrage opportunities in 24% of the cases. During the crisis, arbitrage opportunities decrease to 8% and 19%, respectively. Arbitrage opportunities are more frequent in the case of relatively low rated bonds and bonds with a high coupon rate
Universal Arbitrage Aggregator in Discrete Time Markets under Uncertainty
In a model independent discrete time financial market, we discuss the
richness of the family of martingale measures in relation to different notions
of Arbitrage, generated by a class of significant sets, which we
call Arbitrage de la classe . The choice of reflects
into the intrinsic properties of the class of polar sets of martingale
measures. In particular: for S= absence of Model Independent
Arbitrage is equivalent to the existence of a martingale measure; for
being the open sets, absence of Open Arbitrage is equivalent to
the existence of full support martingale measures. These results are obtained
by adopting a technical filtration enlargement and by constructing a universal
aggregator of all arbitrage opportunities. We further introduce the notion of
market feasibility and provide its characterization via arbitrage conditions.
We conclude providing a dual representation of Open Arbitrage in terms of
weakly open sets of probability measures, which highlights the robust nature of
this concept
The Mirage of Triangular Arbitrage in the Spot Foreign Exchange Market
We investigate triangular arbitrage within the spot foreign exchange market
using high-frequency executable prices. We show that triangular arbitrage
opportunities do exist, but that most have short durations and small
magnitudes. We find intra-day variations in the number and length of arbitrage
opportunities, with larger numbers of opportunities with shorter mean durations
occurring during more liquid hours. We demonstrate further that the number of
arbitrage opportunities has decreased in recent years, implying a corresponding
increase in pricing efficiency. Using trading simulations, we show that a
trader would need to beat other market participants to an unfeasibly large
proportion of arbitrage prices to profit from triangular arbitrage over a
prolonged period of time. Our results suggest that the foreign exchange market
is internally self-consistent and provide a limited verification of market
efficiency
Are There Arbitrage Opportunities in Credit Derivatives Markets? A New Test and an Application to the Case of CDS and ASPs
This paper analyzes possible arbitrage opportunities in credit derivatives markets using selffinancing strategies combining Credit Default Swaps and Asset Swaps Packages. We present a new statistical arbitrage test based on the subsampling methodology which has lower Type I error than existing alternatives. Using four different databases covering the period from 2005 to 2009, long-run (cointegration) and statistical arbitrage analysis are performed. Before the subprime crisis, we find long-run arbitrage opportunities in 26% of the cases and statistical arbitrage opportunities in 24% of the cases. During the crisis, arbitrage opportunities decrease to 8% and 19%, respectively. Arbitrage opportunities are more frequent in the case of relatively low rated bonds and bonds with a high coupon rate.statistical arbitrage, credit derivatives, credit spreads, cointegration, subsampling
Weak and strong no-arbitrage conditions for continuous financial markets
We propose a unified analysis of a whole spectrum of no-arbitrage conditions for finan- cial market models based on continuous semimartingales. In particular, we focus on no-arbitrage conditions weaker than the classical notions of No Arbitrage opportunity (NA) and No Free Lunch with Vanishing Risk (NFLVR). We provide a complete characterization of the considered no-arbitrage conditions, linking their validity to the characteristics of the discounted asset price process and to the existence and the properties of (weak) martingale deflators, and review classical as well as recent results
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