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The context of weak$^*$ topologies and no free lunch is often the proof of the first fundamental theorem of asset pricing. All the ideas below are from Delbaen and Schachermayer (1994). Notation Suppose the price process is a semimartingale $S$. Let $K_0$ represent the space of all claims generated by admissible trading strategies (self-financing and zero ...

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There are two different papers published by Freddy Delbaen and Walter Schachermayer in 1994. A general version of the fundamental theorem of asset pricing They prove a general version of the first fundamental theorem of asset pricing. Published in Mathematische Annalen They prove that NFLVR is equivalent to the existence of at least one EMM (First FTAP'')....

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I think that under the spot (money market) measure, the ratio of bond prices to the money market account is a martingale. So consider a world where the continuously compounded rate for the first year is known at 6%, and there is a two year zero coupon bond priced at exp(-0.12). We simulate the rate r in the second year. The above martingale condition ...

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