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On arbitrages arising from honest times

Author

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  • Claudio Fontana
  • Monique Jeanblanc
  • Shiqi Song

Abstract

In the context of a general continuous financial market model, we study whether the additional information associated with an honest time gives rise to arbitrage profits. By relying on the theory of progressive enlargement of filtrations, we explicitly show that no kind of arbitrage profit can ever be realised strictly before an honest time, while classical arbitrage opportunities can be realised exactly at an honest time as well as after an honest time. Moreover, stronger arbitrages of the first kind can only be obtained by trading as soon as an honest time occurs. We carefully study the behavior of local martingale deflators and consider no-arbitrage-type conditions weaker than NFLVR.

Suggested Citation

  • Claudio Fontana & Monique Jeanblanc & Shiqi Song, 2012. "On arbitrages arising from honest times," Papers 1207.1759, arXiv.org, revised Jul 2013.
    • Handle: RePEc:arx:papers:1207.1759
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    References listed on IDEAS

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    Cited by:

    1. Philip Protter, 2013. "Strict Local Martingales with Jumps," Papers 1307.2436, arXiv.org, revised Mar 2014.
    2. Dorte Kreher, 2013. "Change of measure up to a random time: Details," Papers 1309.6141, arXiv.org, revised Aug 2016.
    3. Johannes Ruf & Wolfgang Runggaldier, 2013. "A Systematic Approach to Constructing Market Models With Arbitrage," Papers 1309.1988, arXiv.org, revised Dec 2013.

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