Two versions of the fundamental theorem of asset pricing

Abstract

Let $L$ be a convex cone of real random variables on the probability space $(\Omega ,\mathcal{A},P_0)$. The existence of a probability $P$ on $\mathcal{A}$ such that $$ P \sim P_0,\quad E_P \abs{X}< \infty\, \text{ and } \, E_P(X) \leq 0\, \text{ for all }X \in L $$ is investigated. Two results are provided. In the first, $P$ is a finitely additive probability, while $P$ is $\sigma$-additive in the second. If $L$ is a linear space then $-X\in L$ whenever $X\in L$, so that $E_P(X)\le 0$ turns into $E_P(X)=0$. Hence, the results apply to various significant frameworks, including equivalent martingale measures and equivalent probability measures with given marginals.

arXiv comment16 pages, with natbib.sty for references

References in corpus (1)

• Market viability via absence of arbitrage of the first kind