Exploiting arbitrage requires short selling

Eckhard Platen () and Stefan Tappe

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Abstract: We show that in a financial market given by semimartingales an arbitrage opportunity, provided it exists, can only be exploited through short selling. This finding provides a theoretical basis for differences in regulation for financial services providers that are allowed to go short and those without short sales. The privilege to be allowed to short sell gives access to potential arbitrage opportunities, which creates by design a bankruptcy risk.

Date: 2020-11, Revised 2022-09
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Published in Frontiers of Mathematical Finance 2(3):265-282, 2023

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2011.12523

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