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Variations on an example of Karatzas and Ruf

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  • Robert Fernholz

Abstract

Markets composed of stocks with capitalization processes represented by positive continuous semimartingales are studied under the condition that the market excess growth rate is bounded away from zero. The following examples of these markets are given: i) a market with a singular covariance matrix and instantaneous relative arbitrage; ii) a market with a singular covariance matrix and no arbitrage; iii) a market with a nonsingular covariance matrix and no arbitrage; iv) a market with a nonsingular covariance matrix and relative arbitrage over an arbitrary time horizon.

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  • Robert Fernholz, 2015. "Variations on an example of Karatzas and Ruf," Papers 1512.02478, arXiv.org.
    • Handle: RePEc:arx:papers:1512.02478
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    References listed on IDEAS

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    1. Robert Fernholz, 2015. "An example of short-term relative arbitrage," Papers 1510.02292, arXiv.org.
    2. Robert Fernholz & Ioannis Karatzas, 2005. "Relative arbitrage in volatility-stabilized markets," Annals of Finance, Springer, vol. 1(2), pages 149-177, November.
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