Statistical Arbitrage with Default and Collateral
AbstractIn this paper we study the implications of the absence of statistical arbitrage opportunities (SAO) in a two-period incomplete market economy where default is allowed but there are collateral requirements. We study the existence of state price deflators and the existence of a solution for the individual optimality problem, obtaining modified versions of the fundamental theorems of asset pricing. Then, we address the existence of equilibrium.
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Bibliographic InfoPaper provided by Banco de Portugal, Economics and Research Department in its series Working Papers with number w200808.
Date of creation: 2008
Date of revision:
Other versions of this item:
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
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- Esteves, Rui Pedro & Reis, Jaime & Ferramosca, Fabiano, 2009.
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- Felix Kubler & Karl Schmedders, 2001. "Stationary Equilibria in Asset-Pricing Models with Incomplete Markets and Collateral," Discussion Papers 1319, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Matos, Joao Amaro de & Lacerda, Ana, 2006. "Dry Markets and Statistical Arbitrage Bounds for European Derivatives," FEUNL Working Paper Series wp479, Universidade Nova de Lisboa, Faculdade de Economia.
- Orrillo, Jaime, 2005. "Collateral once again," Economics Letters, Elsevier, vol. 87(1), pages 27-33, April.
- José Fajardo, 2010. "Behavioral arbitrage with collateral and uncertain deliveries," Annals of Finance, Springer, vol. 6(2), pages 241-254, March.
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