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On long-term arbitrage opportunities in Markovian models of financial markets

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Abstract

A discrete-time infinite horizon stock market model is considered where the logarithm of the price is assumed to be a Markov chain arising from the time-discretization of a stochastic differential equation.

Conditions are given which ensure that there exist investment strategies producing an exponential growth of wealth with a probability converging to 1. The rate of this convergence is studied using large deviation techniques.

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Author information

Authors and Affiliations

  1. Department of Mathematics and its Applications, Central European University, Budapest, Hungary

    Martin L. D. Mbele Bidima

  2. School of Mathematics, University of Edinburgh, JCMB King’s Buildings, Mayfield Road, Edinburgh, EH9 3JZ, UK

    Miklos Rasonyi

Authors
  1. Martin L. D. Mbele Bidima
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  2. Miklos Rasonyi
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Corresponding author

Correspondence to Miklos Rasonyi.

Additional information

This article is based on results from the PhD thesis of the first author. We thank two anonymous referees for their insightful reports.

M. Rasonyi is on leave from MTA SZTAKI, Budapest.

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Mbele Bidima, M.L.D., Rasonyi, M. On long-term arbitrage opportunities in Markovian models of financial markets. Ann Oper Res 200, 131–146 (2012). https://doi.org/10.1007/s10479-011-0892-5

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  • DOI: https://doi.org/10.1007/s10479-011-0892-5

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