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Fundamental theorems of asset pricing for piecewise semimartingales of stochastic dimension


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  • Winslow Strong


The purpose of this paper is two-fold. First is to extend the notions of an n-dimensional semimartingale and its stochastic integral to a piecewise semimartingale of stochastic dimension. The properties of the former carry over largely intact to the latter, avoiding some of the pitfalls of infinite-dimensional stochastic integration. Second is to extend two fundamental theorems of asset pricing (FTAPs): the equivalence of no free lunch with vanishing risk to the existence of an equivalent sigma-martingale measure for the price process, and the equivalence of no arbitrage of the first kind to the existence of an equivalent local martingale deflator for the set of nonnegative wealth processes.

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Paper provided by in its series Papers with number 1112.5340.

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Date of creation: Dec 2011
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Handle: RePEc:arx:papers:1112.5340

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  1. Eckhard Platen, 2006. "A Benchmark Approach To Finance," Mathematical Finance, Wiley Blackwell, Wiley Blackwell, vol. 16(1), pages 131-151.
  2. Winslow Strong & Jean-Pierre Fouque, 2010. "Diversity and Arbitrage in a Regulatory Breakup Model," Papers 1003.5650,, revised Dec 2010.
  3. Alejandro Balbas & Anna Downarowicz, 2004. "Infinitely many securities and the fundamental theorem of asset pricing," Business Economics Working Papers, Universidad Carlos III, Departamento de Economía de la Empresa wb043513, Universidad Carlos III, Departamento de Economía de la Empresa.
  4. Y.M. Kabanov & D.O. Kramkov, 1998. "Asymptotic arbitrage in large financial markets," Finance and Stochastics, Springer, Springer, vol. 2(2), pages 143-172.
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