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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 - 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 ParisTech - École Nationale de la Statistique et de l'Administration Économique)

  • Elyès Jouini

    () (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris-Dauphine - 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://halshs.archives-ouvertes.fr/halshs-00151526
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    References listed on IDEAS

    as
    1. Kreps, David M., 1981. "Arbitrage and equilibrium in economies with infinitely many commodities," Journal of Mathematical Economics, Elsevier, vol. 8(1), pages 15-35, March.
    2. W. Schachermayer, 1994. "Martingale Measures For Discrete-Time Processes With Infinite Horizon," Mathematical Finance, Wiley Blackwell, vol. 4(1), pages 25-55.
    3. repec:dau:papers:123456789/5591 is not listed on IDEAS
    4. Elyès Jouini, 2001. "Arbitrage and investment opportunities," Finance and Stochastics, Springer, vol. 5(3), pages 305-325.
    5. repec:arz:wpaper:eres1993-121 is not listed on IDEAS
    6. Y.M. Kabanov & D.O. Kramkov, 1998. "Asymptotic arbitrage in large financial markets," Finance and Stochastics, Springer, vol. 2(2), pages 143-172.
    7. Peter Lakner, 1993. "Martingale Measures For A Class of Right-Continuous Processes," Mathematical Finance, Wiley Blackwell, vol. 3(1), pages 43-53.
    8. Clark, Stephen A., 1993. "The valuation problem in arbitrage price theory," Journal of Mathematical Economics, Elsevier, vol. 22(5), pages 463-478.
    9. Freddy Delbaen, 1992. "Representing Martingale Measures When Asset Prices Are Continuous And Bounded," Mathematical Finance, Wiley Blackwell, vol. 2(2), pages 107-130.
    10. Duffie, Darrell & Huang, Chi-fu, 1986. "Multiperiod security markets with differential information : Martingales and resolution times," Journal of Mathematical Economics, Elsevier, vol. 15(3), pages 283-303, June.
    11. Mas-Colell, Andreu & Zame, William R., 1991. "Equilibrium theory in infinite dimensional spaces," Handbook of Mathematical Economics,in: W. Hildenbrand & H. Sonnenschein (ed.), Handbook of Mathematical Economics, edition 1, volume 4, chapter 34, pages 1835-1898 Elsevier.
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    Citations

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    Cited by:

    1. 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.
    2. Niushan Gao & Foivos Xanthos, 2016. "Option spanning beyond $L_p$-models," Papers 1603.01288, arXiv.org, revised Sep 2016.
    3. Teemu Pennanen, 2008. "Arbitrage and deflators in illiquid markets," Papers 0807.2526, arXiv.org, revised Apr 2009.
    4. 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.
    5. Teemu Pennanen, 2011. "Arbitrage and deflators in illiquid markets," Finance and Stochastics, Springer, vol. 15(1), pages 57-83, January.

    More about this item

    Keywords

    Arbitrage; State price deflators; Free lunch; Fundamental theorem of asset pricing; Investment opportunities;

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