CFDP 860

Nonnegative Wealth, Absence of Arbitrage, and Feasible Consumption Plans


Publication Date: February 1988

Pages: 20


A restriction to nonnegative wealth is sufficient to preclude all arbitrage opportunities in financial models that have risk neutral probabilities that are valid for all simple strategies. Imposing nonnegative wealth does not constrain agents from making the choice they would make under the standard integrability condition. This conclusion does not depend on whether the markets are complete.


Investments, Free lunch, Arbitrage, Option pricing, Continuous time

JEL Classification Codes:  313, 311


Published in Review of Financial Studies (Winter 1988), 1(4): 377-401 [jstor]