Timeline for Arbitrage and dominant strategies
Current License: CC BY-SA 3.0
11 events
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| Dec 24, 2014 at 3:38 | comment | added | Drew | Once again, an example not a proof. Anyway, we can say your post is wrong, since ND $\implies$ NA and not the other way around, and no its not an $\iff$ unless you can provide me with a concrete example. And plenty of fully functioning markets have short selling constraints, they help explain the indexation effect. | |
| Dec 24, 2014 at 3:35 | comment | added | JTHouseCat | I would argue that if no form of short selling was allowed then this isn't a fully functional market, and would want nothing to do with it. Seems you are confused about what you are trying to apply formulas to. | |
| Dec 24, 2014 at 3:26 | comment | added | Drew | Put-Call parity was not a proof but an intuition building example. I proved ND $\implies$ NA. But this is a small case of that. NA doesnt imply ND. For example, if no short selling was allowed: then you could have the backwardation inequality without aribtrage but not without no dominance. And there can be cases where they are the same thing, but ND is a more stringent condition. What you are saying is a useless degenerate case. | |
| Dec 24, 2014 at 3:25 | comment | added | JTHouseCat | Your above proof is something I like better than the put-call parity proof. NA ===> ND. NA could imply zero or no market activity or a non-functional market, which could imply no dominant position. | |
| Dec 24, 2014 at 2:26 | comment | added | Drew | once again please provide a concrete example. A proof works by providing a concrete example. For example, no backwardation implies: $$F_{t,T} \leq S_te^{r (T-t)}$$ and Contango implies: $$F_{t,T} \geq S_te^{r (T-t)}$$ Which means Contango + Backwardation $\implies F_{t,T} = S_te^{r (T-t)}$, $\implies$ NA. Once again, rigorous mathematics would help you push aside meaningless ideas easily. | |
| Dec 24, 2014 at 1:50 | comment | added | JTHouseCat | Let's say this was a market that functioned well. No foreign stock market, and no OTC market. No Arbitrage implies no contango and no backwardization. No contango and no backwardization doesn't imply no arbitrage. Theortically NA => ND could happen, because a functional market requires three market participants: hedgers, speculators, and arbitragers at all time. | |
| Dec 23, 2014 at 15:28 | comment | added | Drew | ND $\implies$ NA is well known. NA $\implies$ ND, doesnt seem to be true. Can you rigorously define both and then give me an example. Please, be a Bourbakist about this, I think that level of mathematical rigor will clarify everything | |
| Dec 22, 2014 at 3:21 | history | edited | JTHouseCat | CC BY-SA 3.0 |
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| Dec 16, 2014 at 6:12 | history | edited | JTHouseCat | CC BY-SA 3.0 |
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| Dec 16, 2014 at 6:06 | history | edited | JTHouseCat | CC BY-SA 3.0 |
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| Dec 16, 2014 at 6:00 | history | answered | JTHouseCat | CC BY-SA 3.0 |