For any positive diffusion with minimal regularity, there exists a semimartingale with uniformly close paths that is a martingale under an equivalent probability. As a result, in models of asset prices based on such diffusions, arbitrage and bubbles alike disappear under proportional transaction costs or under small model mis-specifications. Thus, local martingale diffusion models of arbitrage and bubbles are not robust to small trading and monitoring frictions.
Guasoni P, Rasonyi M (2015). Fragility of arbitrage and bubbles in local martingale diffusion models. FINANCE AND STOCHASTICS, 19(2), 215-231 [10.1007/s00780-015-0256-0].
Fragility of arbitrage and bubbles in local martingale diffusion models
Guasoni P
Co-primo
;
2015
Abstract
For any positive diffusion with minimal regularity, there exists a semimartingale with uniformly close paths that is a martingale under an equivalent probability. As a result, in models of asset prices based on such diffusions, arbitrage and bubbles alike disappear under proportional transaction costs or under small model mis-specifications. Thus, local martingale diffusion models of arbitrage and bubbles are not robust to small trading and monitoring frictions.File in questo prodotto:
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