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The fundamental theorem of asset pricing, the hedging problem and maximal claims in financial markets with short sales prohibitions

  • Sergio Pulido
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    This paper consists of two parts. In the first part we prove the fundamental theorem of asset pricing under short sales prohibitions in continuous-time financial models where asset prices are driven by nonnegative, locally bounded semimartingales. A key step in this proof is an extension of a well-known result of Ansel and Stricker. In the second part we study the hedging problem in these models and connect it to a properly defined property of "maximality" of contingent claims.

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    File URL: http://arxiv.org/pdf/1012.3102
    File Function: Latest version
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    Paper provided by arXiv.org in its series Papers with number 1012.3102.

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    Date of creation: Dec 2010
    Date of revision: Jan 2014
    Publication status: Published in Annals of Applied Probability 2014, Vol. 24, No. 1, 54-75
    Handle: RePEc:arx:papers:1012.3102
    Contact details of provider: Web page: http://arxiv.org/

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    1. Napp, C., 2003. "The Dalang-Morton-Willinger theorem under cone constraints," Journal of Mathematical Economics, Elsevier, vol. 39(1-2), pages 111-126, February.
    2. Elyégs Jouini & Hédi Kallal, 1995. "Arbitrage In Securities Markets With Short-Sales Constraints," Mathematical Finance, Wiley Blackwell, vol. 5(3), pages 197-232.
    3. Eckhard Platen, 2004. "A Benchmark Approach to Finance," Research Paper Series 138, Quantitative Finance Research Centre, University of Technology, Sydney.
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