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Maximal Arbitrage

Listed author(s):
  • Klaus Schürger
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    Let S=(S_t), t=0,1,...,T (T being finite), be an adapted R^d-valued process. Each component process of S might be interpreted as the price process of a certain security. A trading strategy H=(H_t), t= 1,...,T, is a predictable R^d-valued process. A strategy H is called extreme if it represents a maximal arbitrage opportunity. By this we mean that H generates at time T a nonnegative portfolio value which is positive with maximal probability. Let $F^e$ denote the set of all states of the world at which the portfolio value at time T, generated by an extreme strategy (which is shown to exist), is equal to zero. We characterize those subsets of F^e, on which no arbitrage opportunities exist.

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    Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse9_2002.

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    Length: 15
    Date of creation: May 2002
    Handle: RePEc:bon:bonedp:bgse9_2002
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    Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany

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