DETERMINISTIC CRITERIA FOR THE ABSENCE AND EXISTENCE OF ARBITRAGE IN MULTI-DIMENSIONAL DIFFUSION MARKETS

David Criens ()
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David Criens: Department of Mathematics, Technical University of Munich, Munich 80333, Germany

International Journal of Theoretical and Applied Finance (IJTAF), 2018, vol. 21, issue 01, 1-41

Abstract: We derive deterministic criteria for the existence and nonexistence of equivalent (local) martingale measures for financial markets driven by multi-dimensional time-inhomogeneous diffusions. Our conditions can be used to construct financial markets in which the no unbounded profit with bounded risk condition holds, while the classical no free lunch with vanishing risk condition fails.

Keywords: Arbitrage; equivalent (local) martingale measure; multi-dimensional time-inhomogeneous diffusion; martingale problem (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1142/S0219024918500024

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