No-arbitrage conditions and absolutely continuous changes of measure

Claudio Fontana

Papers from arXiv.org

Abstract: We study the stability of several no-arbitrage conditions with respect to absolutely continuous, but not necessarily equivalent, changes of measure. We first consider models based on continuous semimartingales and show that no-arbitrage conditions weaker than NA and NFLVR are always stable. Then, in the context of general semimartingale models, we show that an absolutely continuous change of measure does never introduce arbitrages of the first kind as long as the change of measure density process can reach zero only continuously.

Date: 2013-12, Revised 2014-03
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