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Characterization of arbitrage-free market


  • Alena Henclová


King and Korf [4] introduced a new framework for analyzing pricing theory for incomplete markets and contingent claims. The fundamental theorem of asset pricing was reformulated in a very general form. We mentioned in [2] that their characterization of the arbitrage-free market is not correct. Now we propose an equivalent characterization of the arbitrage-free market: the market admits no free lunch in the limit if and only if there exist finitely additive equivalent martingale measure Q and 8 > 0 such that Q(E) :::::8. P(E) for any measurable set E.

Suggested Citation

  • Alena Henclová, 2003. "Characterization of arbitrage-free market," Bulletin of the Czech Econometric Society, The Czech Econometric Society, vol. 10(19).
  • Handle: RePEc:czx:journl:v:10:y:2003:i:19:id:128

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    arbitrage pricing; conjugate duality; contingent claims; martingales; finitely additive measures; free lunch.;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates


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