Discrete-time market models from the small investor point of view and the first fundamental-type theorem-Reference-Cited by-同舟云学术

Discrete-time market models from the small investor point of view and the first fundamental-type theorem

Published:2017-12-01 Issue:1 Volume:16 Page:17-40
ISSN:2300-133X
Container-title:Annales Universitatis Paedagogicae Cracoviensis. Studia Mathematica
language:en
Short-container-title:

Author:

Karaś Marek¹,Serwatka Anna²

Affiliation:

1. AGH University of Science and Technology , Faculty of Applied Mathematics , al. A. Mickiewicza, 30 30-059 Kraków , Poland

2. Institute of Mathematics, Faculty of Mathematics and Computer Science , Jagiellonian University in Kraków , ul. Łojasiewicza 6, 30-348 Kraków , Poland

Abstract

Abstract In this paper, we discuss the no-arbitrage condition in a discrete financial market model which does not hold the same interest rate assumptions. Our research was based on, essentially, one of the most important results in mathematical finance, called the Fundamental Theorem of Asset Pricing. For the standard approach a risk-free bank account process is used as numeraire. In those models it is assumed that the interest rates for borrowing and saving money are the same. In our paper we consider the model of a market (with d risky assets), which does not hold the same interest rate assumptions. We introduce two predictable processes for modelling deposits and loans. We propose a new concept of a martingale pair for the market and prove that if there exists a martingale pair for the considered market, then there is no arbitrage opportunity. We also consider special cases in which the existence of a martingale pair is necessary and the sufficient conditions for these markets to be arbitrage free.

Publisher

Walter de Gruyter GmbH

Reference12 articles.

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