We show that the classical concepts of No Arbitrage (NA) and of No Free Lunch with Vanishing Risk (NFLVR) are intimately linked with the preferences of the agents acting in the market. We point out that the difference, from an economic perspective, between NA and NFLVR rests on selection of the class of monotone, respectively monotone and concave, utility functions that determines the absence of a Market Free Lunch (MFL), a concept introduced in Frittelli 2004. We finally prove the equivalence between the absence of MLF and the existence of an equivalent sigma -martingale measure.
No arbitrage and preferences / M. Frittelli (INCONTRI DI STUDIO). - In: Economia matematica e econometria : problemi e prospettiveMilano : LED, 2007. - ISBN 9788879163668. - pp. 181-201
No arbitrage and preferences
M. FrittelliPrimo
2007
Abstract
We show that the classical concepts of No Arbitrage (NA) and of No Free Lunch with Vanishing Risk (NFLVR) are intimately linked with the preferences of the agents acting in the market. We point out that the difference, from an economic perspective, between NA and NFLVR rests on selection of the class of monotone, respectively monotone and concave, utility functions that determines the absence of a Market Free Lunch (MFL), a concept introduced in Frittelli 2004. We finally prove the equivalence between the absence of MLF and the existence of an equivalent sigma -martingale measure.File | Dimensione | Formato | |
---|---|---|---|
ArbitragePreference.pdf
accesso riservato
Tipologia:
Post-print, accepted manuscript ecc. (versione accettata dall'editore)
Dimensione
206.15 kB
Formato
Adobe PDF
|
206.15 kB | Adobe PDF | Visualizza/Apri Richiedi una copia |
Pubblicazioni consigliate
I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.