Abstract
It is well known that existence of equivalent martingale measure (EMM) is essentially equivalent to absence of arbitrage. In this paper, we give an overview of this connection and also include material on this theme from an unpublished article written with Professor Kallianpur. This is included in the book by Kallianpur (7) on Option pricing. In that article, we had introduced a 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 characterising EMM in terms of absence of (suitable notion of) arbitrage in the class simple strategies. Moreover, the proof of this assertion is purely functional analytic, without invoking semimartingales and stochastic integration.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
