Publications and Preprints

On the Fundamental Theorem of Asset Pricing
Abhay G. Bhatt and Rajeeva L. Karandikar
It is well known that existence of equivalent martingale measure (EMM) is {\em essentially} equivalent to absence of arbitrage. In this paper, we give an overview of this connection and also include work that we had done with Professor Kallianpur, which was not published as an article, but is included in the book by Kallianpur on Option pricing. This is the concept of No Approximate Arbitrage with Controlled Risk - NAACR which turns out to be equivalent to the existence of equivalent martingale measure. This seems to be the only result characterizing EMM in terms of simple strategies. Moreover, the proof of this assertion is purely functional analytic, without invoking semimartingales and stochastic integration.

isid/ms/2015/07 [fulltext]

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