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On arbitrages arising from honest times

  • Claudio Fontana
  • Monique Jeanblanc
  • Shiqi Song
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    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.

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    File URL: http://arxiv.org/pdf/1207.1759
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    Paper provided by arXiv.org in its series Papers with number 1207.1759.

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    Date of creation: Jul 2012
    Date of revision: Jul 2013
    Handle: RePEc:arx:papers:1207.1759
    Contact details of provider: Web page: http://arxiv.org/

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    1. Schweizer, Martin, 1992. "Martingale densities for general asset prices," Journal of Mathematical Economics, Elsevier, vol. 21(4), pages 363-378.
    2. Hardy Hulley & Martin Schweizer, 2010. "M6 - On Minimal Market Models and Minimal Martingale Measures," Research Paper Series 280, Quantitative Finance Research Centre, University of Technology, Sydney.
    3. Ashkan Nikeghbali & Eckhard Platen, 2013. "A reading guide for last passage times with financial applications in view," Finance and Stochastics, Springer, vol. 17(3), pages 615-640, July.
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