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Arbitrage and state price deflators in a general intertemporal framework

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  • Clotilde Napp

    (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres - CNRS - Centre National de la Recherche Scientifique, CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique)

  • Elyès Jouini

    (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres - CNRS - Centre National de la Recherche Scientifique)

Abstract

In securities markets, the characterization of the absence of arbitrage by the existence of state price deflators is generally obtained through the use of the Kreps–Yan theorem.This paper deals with the validity of this theorem (see Kreps, D.M., 1981. Arbitrage and equilibrium in economies with infinitely many commodities. Journal of Mathematical Economics 8, 15–35; Yan, J.A., 1980. Caractérisation d'une classe d'ensembles convexes de L1 ou H1. Sém. de Probabilités XIV. Lecture Notes in Mathematics 784, 220–222) in a general framework. More precisely, we say that the Kreps–Yan theorem is valid for a locally convex topological space (X,?), endowed with an order structure, if for each closed convex cone C in X such that CX? and C?X+={0}, there exists a strictly positive continuous linear functional on X, whose restriction to C is non-positive.We first show that the Kreps–Yan theorem is not valid for spaces if fails to be sigma-finite.Then we prove that the Kreps–Yan theorem is valid for topological vector spaces in separating duality X,Y, provided Y satisfies both a "completeness condition" and a "Lindelöf-like condition".We apply this result to the characterization of the no-arbitrage assumption in a general intertemporal framework.

Suggested Citation

  • Clotilde Napp & Elyès Jouini, 2005. "Arbitrage and state price deflators in a general intertemporal framework," Post-Print halshs-00151526, HAL.
    • Handle: RePEc:hal:journl:halshs-00151526
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00151526
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    References listed on IDEAS

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    1. W. Schachermayer, 1994. "Martingale Measures For Discrete‐Time Processes With Infinite Horizon," Mathematical Finance, Wiley Blackwell, vol. 4(1), pages 25-55, January.
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    Cited by:

    1. Felix-Benedikt Liebrich & Marco Maggis & Gregor Svindland, 2020. "Model Uncertainty: A Reverse Approach," Papers 2004.06636, arXiv.org, revised Mar 2022.
    2. Martins-da-Rocha, V. Filipe & Riedel, Frank, 2010. "On equilibrium prices in continuous time," Journal of Economic Theory, Elsevier, vol. 145(3), pages 1086-1112, May.
    3. Niushan Gao & Foivos Xanthos, 2016. "Option spanning beyond $L_p$-models," Papers 1603.01288, arXiv.org, revised Sep 2016.
    4. repec:dau:papers:123456789/4652 is not listed on IDEAS
    5. Teemu Pennanen, 2008. "Arbitrage and deflators in illiquid markets," Papers 0807.2526, arXiv.org, revised Apr 2009.
    6. Bruno Bouchard & Elyès Jouini, 2010. "Transaction Costs in Financial Models," Post-Print halshs-00703138, HAL.
    7. Emmanuel Denis & Yuri Kabanov, 2012. "Consistent price systems and arbitrage opportunities of the second kind in models with transaction costs," Finance and Stochastics, Springer, vol. 16(1), pages 135-154, January.
    8. Maria Arduca & Cosimo Munari, 2020. "Fundamental theorem of asset pricing with acceptable risk in markets with frictions," Papers 2012.08351, arXiv.org, revised Apr 2022.
    9. Maria Arduca & Cosimo Munari, 2023. "Fundamental theorem of asset pricing with acceptable risk in markets with frictions," Finance and Stochastics, Springer, vol. 27(3), pages 831-862, July.
    10. Teemu Pennanen, 2011. "Arbitrage and deflators in illiquid markets," Finance and Stochastics, Springer, vol. 15(1), pages 57-83, January.
    11. Teemu Pennanen, 2011. "Convex Duality in Stochastic Optimization and Mathematical Finance," Mathematics of Operations Research, INFORMS, vol. 36(2), pages 340-362, May.
    12. Michele Bufalo & Antonio Di Bari & Giovanni Villani, 2023. "A Compound Up-and-In Call like Option for Wind Projects Pricing," Risks, MDPI, vol. 11(5), pages 1-13, May.

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