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Contingent Claim Valuation under Increasing Profit, Strong Arbitrage, and Arbitrage of the First Kind

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  • Yukihiro Tsuzuki

Abstract

We study the upper hedging price for contingent claims in market models with strong types of arbitrage: increasing profit, strong arbitrage, and arbitrage of the first kind. The existence of arbitrage may make the price smaller than if it did not exist. For example, when the asset price process has a reflecting boundary, which introduces increasing profit in the market model, the option prices are reduced to those of the corresponding options that knock-out at the boundary. Furthermore, we demonstrate that corporate stock price processes with increasing profit are obtained as a result of corporate stock issuance and repurchase plans.

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  • Yukihiro Tsuzuki, 2026. "Contingent Claim Valuation under Increasing Profit, Strong Arbitrage, and Arbitrage of the First Kind," Papers 2603.28256, arXiv.org.
    • Handle: RePEc:arx:papers:2603.28256
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    References listed on IDEAS

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    1. David Criens & Mikhail Urusov, 2023. "Criteria for the absence of arbitrage in general diffusion markets," Papers 2306.11470, arXiv.org, revised Sep 2024.
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