|
|||||
|
|
Detection of arbitrage in a market with multi-asset derivatives and known risk-neutral marginals |
|
| Affiliation: | 1. Department of Business Administration, Universidad Carlos III, Spain;2. D.G.A. Supervisión – Banco de España, Spain;1. University of Liège, HEC – Management School, Belgium;2. EDHEC Business School, Lille-Nice, France;3. Haute Ecole Fr. Ferrer, Brussels, Belgium;4. Maastricht University, School of Business and Economics, Maastricht, The Netherlands;5. Gambit Financial Solutions, Belgium;1. Economics Department, Lancaster University Management School, LA1 4YX, United Kingdom;2. Isenberg School of Management, University of Massachusetts-Amherst, 90 Campus Center Way, 209A Flint Lab, Amherst, MA 01003, United States;3. The University of Kent, Kent Business School, Canterbury, Kent, United Kingdom;1. Schools of Economics: Interdisciplinary Center, Tel-Aviv University and CEPR, Israel;2. Zicklin School of Business, Baruch College, United States;1. Department of Economics, University of Haifa, Haifa 31905, Israel;2. Research Department, Federal Reserve Bank Boston, 600 Atlantic Avenue, Boston, MA 02210, USA |
| Abstract: | In this paper we study the existence of arbitrage opportunities in a multi-asset market when risk-neutral marginal distributions of asset prices are known. We first propose an intuitive characterization of the absence of arbitrage opportunities in terms of copula functions. We then address the problem of detecting the presence of arbitrage by formalizing its resolution in two distinct ways that are both suitable for the use of optimization algorithms. The first method is valid in the general multivariate case and is based on Bernstein copulas that are dense in the set of all copula functions. The second one is easier to work with but is only valid in the bivariate case. It relies on results about improved Fréchet–Hoeffding bounds in presence of additional information. For both methods, details of implementation steps and empirical applications are provided. |
| Keywords: | Multi-asset derivative Arbitrage Incomplete market Risk-neutral measure Multivariate distribution Copula function G10 C52 D81 |
| 本文献已被 ScienceDirect 等数据库收录！ | |