No-Arbitrage Principle in Conic Finance

Clicks: 133
ID: 113134
2020
Free PDF
Article Quality & Performance Metrics
Overall Quality
Not rated
Combines reader engagement with the AI quality analysis. This article has not been analysed, so there is no overall score — reader engagement is measured and shown alongside.
AI Quality Assessment
Not analyzed
Readership in this journal
Steady

Ranked #76 of 89 articles by views in risks

Most read Least read

Bar heights use a square-root scale.

Mint this article as an NFT
Not yet minted

Create a permanent, verifiable on-chain record of this article on the Scimatic Network. The NFT is held in your Journament account, and you can withdraw it to your own wallet at any time.

5 SUSD one-off · no wallet required
Sign in to mint
Abstract
In a one price economy, the Fundamental Theorem of Asset Pricing (FTAP) establishes that no-arbitrage is equivalent to the existence of an equivalent martingale measure. Such an equivalent measure can be derived as the normal unit vector of the hyperplane that separates the attainable gain subspace and the convex cone representing arbitrage opportunities. However, in two-price financial models (where there is a bid–ask price spread), the set of attainable gains is not a subspace anymore. We use convex optimization, and the conic property of this region to characterize the “no-arbitrage” principle in financial models with the bid–ask price spread present. This characterization will lead us to the generation of a set of price factor random variables. Under such a set, we can find the lower and upper bounds (supper-hedging and sub-hedging bounds) for the price of any future cash flow. We will show that for any given cash flow, for which the price is outside the above range, we can build a trading strategy that provides one with an arbitrage opportunity. We will generalize this structure to any two-price finite-period financial model.
Reference Key
vazifedan2020risksno-arbitrage Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Mehdi Vazifedan;Qiji Jim Zhu;Vazifedan, Mehdi;Zhu, Qiji Jim;
Journal risks
Year 2020
DOI
10.3390/risks8020066
URL
https://www.mdpi.com/2227-9091/8/2/66##authors
Keywords
convex optimization conic finance arbitrage pricing convex optimization conic finance arbitrage pricing

Citations

No citations found. To add a citation, contact the admin at info@scimatic.org

Comments

No comments yet. Be the first to comment on this article.