Nonnegative Wealth, Absence of Arbitrage, and Feasible Consumption Plans
AbstractA restriction to nonnegative wealth is sufficient to preclude all arbitrage opportunities in financial models that have risk neutral probabilities that are valid for all simple strategies. Imposing nonnegative wealth does not constrain agents from making the choice they would make under the standard integrability condition. This conclusion does not depend on whether the markets are complete.
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Bibliographic InfoPaper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 860.
Length: 20 pages
Date of creation: Feb 1988
Date of revision:
Publication status: Published in Review of Financial Studies (1988), 1: 377-401
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
Other versions of this item:
- Philip H. Dybvig, Chi-fu Huang, 1988. "Nonnegative Wealth, Absence of Arbitrage, and Feasible Consumption Plans," Review of Financial Studies, Society for Financial Studies, vol. 1(4), pages 377-401.
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- Huang, Chi-fu, 1985. "Information structures and viable price systems," Journal of Mathematical Economics, Elsevier, vol. 14(3), pages 215-240, June.
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- Merton, Robert C., 1971.
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- Harrison, J. Michael & Pliska, Stanley R., 1981. "Martingales and stochastic integrals in the theory of continuous trading," Stochastic Processes and their Applications, Elsevier, vol. 11(3), pages 215-260, August.
- Cox, John C. & Huang, Chi-fu., 1987. "Optimal consumption and portfolio policies when asset prices follow a diffusion process," Working papers 1926-87., Massachusetts Institute of Technology (MIT), Sloan School of Management.
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