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A note on Insider information and its relation with the arbitrage condition and the utility maximization problem
Bernardo D'Auria1, José Antonio Salmerón2
1Department of Mathematics "Tullio Levi-Civita", University of Padova, 35131, Padova PD, Italy.
Mathematical Biosciences and Engineering : MBE
|May 10, 2023
Summary
A financial theorem is disproven using a novel strategy, but the no-arbitrage property is confirmed for buy-and-hold strategies in financial markets.
Area of Science:
- Mathematical Finance
- Financial Engineering
Background:
- Theorem 4.16 in prior research established certain financial market properties.
- Understanding admissible strategies is crucial for market analysis.
Purpose of the Study:
- To rigorously evaluate the validity of Theorem 4.16.
- To investigate the implications for the no-arbitrage property under specific trading strategies.
Main Methods:
- Constructing a counter-example strategy to falsify Theorem 4.16.
- Analyzing the no-arbitrage property within the set of buy-and-hold strategies.
Main Results:
- Theorem 4.16 was demonstrated to be false.
- The no-arbitrage property was proven to hold for buy-and-hold strategies.
Conclusions:
- The falsity of Theorem 4.16 necessitates a re-evaluation of existing financial models.
- The resilience of the no-arbitrage property under buy-and-hold strategies offers a stable foundation for certain market analyses.
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