Arbitrage conditions with no short selling
- 1 Departamento de Matemáticas Aplicadas Facultad de Ciencias Matemáticas Universidad Complutense de Madrid
ISSN: 2357-6529, 0120-0380
Year of publication: 2012
Volume: 19
Issue: 1
Pages: 37-54
Type: Article
More publications in: Boletín de matemáticas
Abstract
A key assumption to prove the Fundamental Theorem of Mathematical Finance is the possibility of short selling the risky assets of the market. In this article we exhibit a simple geometric condition to handle the arbitrage opportunities when short selling is not possible. Moreover, this approach provides a pedagogical tool to visualize the consistency of the model when shorting is allowed for only some of the assets. Some examples are presented, both in analytical and graphical ways.