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Arbitrage without borrowing or short selling?

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Lukkarinen-Pakkanen-2016-revised.pdfAccepted version407.85 kBAdobe PDFView/Open
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Title: Arbitrage without borrowing or short selling?
Authors: Lukkarinen, J
Pakkanen, MS
Item Type: Journal Article
Abstract: We show that a trader, who starts with no initial wealth and is not allowed to borrow money or short sell assets, is theoretically able to attain positive wealth by continuous trading, provided that she has perfect foresight of future asset prices, given by a continuous semimartingale. Such an arbitrage strategy can be constructed as a process of finite variation that satisfies a seemingly innocuous self-financing condition, formulated using a pathwise Riemann-Stieltjes integral. Our result exemplifies the potential intricacies of formulating economically meaningful self-financing conditions in continuous time, when one leaves the conventional arbitrage-free framework.
Issue Date: 27-Sep-2016
Date of Acceptance: 15-Sep-2016
URI: http://hdl.handle.net/10044/1/40348
DOI: https://dx.doi.org/10.1007/s11579-016-0180-x
ISSN: 1862-9679
Publisher: Springer Verlag (Germany)
Start Page: 263
End Page: 274
Journal / Book Title: Mathematics and Financial Economics
Volume: 11
Issue: 3
Copyright Statement: © The Author(s) 2016. This article is published with open access at Springerlink.com
Sponsor/Funder: Academy of Finland
Funder's Grant Number: 258042
Keywords: q-fin.MF
60H05, 90G10, 60G44
01 Mathematical Sciences
14 Economics
Notes: 13 pages, 1 figure
Publication Status: Published
Appears in Collections:Financial Mathematics
Faculty of Natural Sciences