On Optimal Arbitrage
نویسندگان
چکیده
In a Markovian model for a financial market, we characterize the best arbitrage with respect to the market portfolio that can be achieved using non-anticipative investment strategies, in terms of the smallest positive solution to a parabolic partial differential inequality; this is determined entirely on the basis of the covariance structure of the model. The solution is also used to generate the investment strategy that realizes the best possible arbitrage. Some extensions to non-Markovian situations are also presented.
منابع مشابه
Optimal Threshold Control for Energy Arbitrage with Degradable Battery Storage
Energy arbitrage has the potential to make electric grids more efficient and reliable. Batteries hold great promise for energy storage in arbitrage but can degrade rapidly with use. In this paper, we analyze the impact of storage degradation on the structure of optimal policies in energy arbitrage. We derive properties of the battery degradation response that are sufficient for the existence of...
متن کاملRisk/Arbitrage Strategies: A New Concept for Asset/Liability Management, Optimal Fund Design and Optimal Portfolio Selection in a Dynamic, Continuous-Time Framework Part III: A Risk/Arbitrage Pricing Theory
Asset/Liability management, optimal fund design and optimal portfolio selection have been key issues of interest to the (re)insurance and investment banking communities, respectively, for some years especially in the design of advanced risktransfer solutions for clients in the Fortune 500 group of companies. Building on the new concept of limited risk arbitrage investment management in a diffus...
متن کاملLosing Money on Arbitrage: Optimal Dynamic Portfolio Choice in Markets with Arbitrage Opportunities
We derive the optimal investment policy of a risk-averse investor in a market where there is a textbook arbitrage opportunity, but where liabilities must be secured by collateral. We find that it is often optimal to underinvest in the arbitrage by taking a smaller position than collateral constraints allow. Even when the optimal policy is followed, the arbitrage portfolio typically experiences ...
متن کاملComputation of arbitrage in frictional bond markets
In this paper we study the computational problem of arbitrage in a frictional market with a finite number of bonds and finite and discrete times to maturity. Types of frictions under consideration include fixed and proportional transaction costs, bid–ask spreads, taxes, and upper bounds on the number of units for transaction. We develop a necessary and sufficient condition for the existence of ...
متن کاملComputation of Arbitrage in a Financial Market with Various Types of Frictions
In this paper we study the computational problem of arbitrage in a frictional market with a finite number of bonds and finite and discrete times to maturity. Types of frictions under consideration include fixed and proportional transaction costs, bid-ask spreads, taxes, and upper bounds on the number of units for transaction. We obtain some negative result on computational difficulty in general...
متن کاملذخیره در منابع من
با ذخیره ی این منبع در منابع من، دسترسی به آن را برای استفاده های بعدی آسان تر کنید
عنوان ژورنال:
دوره شماره
صفحات -
تاریخ انتشار 2008