Non-arbitrage for Informational Discrete Time Market Models

Tahir Choulli; Jun Deng

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arXiv · 1407.1453

Non-arbitrage for Informational Discrete Time Market Models

Tahir Choulli·Jun Deng

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Abstract

This paper focuses on the stability of the non-arbitrage condition in discrete time market models when some unknown information $τ$ is partially/fully incorporated into the market. Our main conclusions are twofold. On the one hand, for a fixed market $S$, we prove that the non-arbitrage condition is preserved under a mild condition. On the other hand, we give the necessary and sufficient equivalent conditions on the unknown information $τ$ to ensure the validity of the non-arbitrage condition for any market. Two concrete examples are presented to illustrate the importance of these conditions, where we calculate explicitly the arbitrage opportunities when they exist.

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Tahir Choulli, Jun Deng. 2014-07-06. Non-arbitrage for Informational Discrete Time Market Models. https://arxiv.org/abs/1407.1453

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