Arbitrage and investment opportunities
AbstractWe consider a model in which any investment opportunity is described in terms of cash flows. We don't assume that there is a numéraire, enabling investors to transfer wealth through time; the time horizon is not supposed to be finite and the investment opportunities are not specifically related to the buying and selling of securities on a financial market. In this quite general framework, we show that the assumption of no-arbitrage is essentially equivalent to the existence of a "discount process" under which the "net present value" of any available investment is nonpositive. Since most market imperfections, such as short sale constraints, convex cone constraints, proportional transaction costs, no borrowing or different borrowing and lending rates, etc., can fit in our model for a specific set of investments, we then obtain a characterization of the no-arbitrage condition in these imperfect models, from which it is easy to derive pricing formulae for contingent claims.
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Bibliographic InfoArticle provided by Springer in its journal Finance and Stochastics.
Volume (Year): 5 (2001)
Issue (Month): 3 ()
Note: received: December 1998; final version received: June 2000
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Web page: http://www.springerlink.com/content/101164/
Other versions of this item:
- Elyès Jouini & Clotilde Napp, 1998. "Arbitrage and Investment Opportunities," Working Papers 98-29, Centre de Recherche en Economie et Statistique.
- Elyès Jouini & Clotilde Napp, 2001. "Arbitrage and investment opportunities," Post-Print halshs-00778381, HAL.
- Elyès Jouini & Clotilde Napp, 1999. "Arbitrage and Investment Opportunities," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-034, New York University, Leonard N. Stern School of Business-.
- C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
- G19 - Financial Economics - - General Financial Markets - - - Other
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- Napp, Clotilde, 2001. "Pricing issues with investment flows Applications to market models with frictions," Journal of Mathematical Economics, Elsevier, vol. 35(3), pages 383-408, June.
- M A H Dempster & I V Evstigneev & M I Taksar, 2005.
"Asset pricing and hedging in financial markets with transaction costs: an approach based on the von Neumann-Gale model,"
062005, University of Cambridge, Judge Business School, Centre for Financial Research.
- M. Dempster & I. Evstigneev & M. Taksar, 2006. "Asset Pricing and Hedging in Financial Markets with Transaction Costs: An Approach Based on the Von Neumann–Gale Model," Annals of Finance, Springer, vol. 2(4), pages 327-355, October.
- Jouini, Elyes & Napp, Clotilde & Schachermayer, Walter, 2005.
"Arbitrage and state price deflators in a general intertemporal framework,"
Journal of Mathematical Economics,
Elsevier, vol. 41(6), pages 722-734, September.
- Clotilde Napp & Elyès Jouini, 2005. "Arbitrage and state price deflators in a general intertemporal framework," Post-Print halshs-00151526, HAL.
- Elyès Jouini, 2001.
"Arbitrage and Control Problems in Finance. Presentation,"
- Jouini, Elyes, 2001. "Arbitrage and control problems in finance: A presentation," Journal of Mathematical Economics, Elsevier, vol. 35(2), pages 167-183, April.
- Napp, C., 2003. "The Dalang-Morton-Willinger theorem under cone constraints," Journal of Mathematical Economics, Elsevier, vol. 39(1-2), pages 111-126, February.
- Teemu Pennanen, 2011. "Arbitrage and deflators in illiquid markets," Finance and Stochastics, Springer, vol. 15(1), pages 57-83, January.
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