Consistency among trading desks

Abstract. We consider a bank having several trading desks, each of which trades a different class of contingent claims with each desk using a different model. We assume that the models are arbitrage-free. A practical question is whether a bank using several models can be arbitraged. Surprisingly it can happen that in some cases there must be an arbitrage. We discuss conditions under which the bank trades without offering arbitrage. Key Words: arbitrage, pricing operator, countably additive measure, martingale measure JEL Classification: G10 Mathematics Subject Classification (2000): 91B24, 60B05, 46N10

• Type: Journal
• Year: 2006
• Where: FS
• Authors: David Heath, Hyejin Ku
• Keywords: Arbitrage, Bank, FS 2006, Measure Jel Classification