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On Financial Markets where only Buy-And-Hold Trading is Possible

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Abstract

A financial market model where agents can only trade using realistic buyand-hold strategies is considered. Minimal assumptions are made on the nature of the asset-price process — in particular, the semimartingale property is not assumed. Via a natural assumption of limited opportunities for unlimited resulting wealth from trading, coined the No-Unbounded-Profit-with-Bounded-Risk (NUPBR) condition, we establish that asset-prices have to be semimartingales, as well as a weakened version of the Fundamental Theorem of Asset Pricing that involves supermartingale deflators rather than Equivalent Martingale Measures. Further, the utility maximization problem is considered and it is shown that using only buy-and-hold strategies, optimal utilities and wealth processes resulting from continuous trading can be approximated arbitrarily well.

Suggested Citation

  • Constantinos Kardaras & Eckhard Platen, 2008. "On Financial Markets where only Buy-And-Hold Trading is Possible," Research Paper Series 213, Quantitative Finance Research Centre, University of Technology, Sydney.
  • Handle: RePEc:uts:rpaper:213
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    File URL: https://www.uts.edu.au/sites/default/files/qfr-archive-02/QFR-rp213.pdf
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    1. Föllmer, Hans & Kramkov, D. O., 1997. "Optional decompositions under constraints," SFB 373 Discussion Papers 1997,31, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
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    Cited by:

    1. Eckhard Platen & Renata Rendek, 2010. "Approximating the Numeraire Portfolio by Naive Diversification," Research Paper Series 281, Quantitative Finance Research Centre, University of Technology, Sydney.
    2. Eckhard Platen, 2008. "A Unifying Approach to Asset Pricing," Research Paper Series 227, Quantitative Finance Research Centre, University of Technology, Sydney.
    3. Renata Rendek, 2013. "Modeling Diversified Equity Indices," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 23.
    4. Eckhard Platen, 2011. "A Benchmark Approach to Investing and Pricing," World Scientific Book Chapters,in: THE KELLY CAPITAL GROWTH INVESTMENT CRITERION THEORY and PRACTICE, chapter 28, pages 409-426 World Scientific Publishing Co. Pte. Ltd..
    5. Constantinos Kardaras & Eckhard Platen, 2008. "Minimizing the Expected Market Time to Reach a Certain Wealth Level," Research Paper Series 230, Quantitative Finance Research Centre, University of Technology, Sydney.
    6. Constantinos Kardaras, 2008. "The continuous behavior of the numeraire portfolio under small changes in information structure, probabilistic views and investment constraints," Papers 0804.2912, arXiv.org, revised Nov 2009.

    More about this item

    Keywords

    numeraire portfolio; semimartingales; buy-and-hold strategies; unbounded profit with bounded risk; supermartingale deflators; utility maximization.;

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