If only there were no liquidity constraints

Based on a simple stochastic model, we illustrate that an ineligible change of numéraire leads to arbitrage opportunities. This observation is particularly interesting in the current low interest rate environment, where one could generate less expensive zero-coupon bonds.

+ Reihe: IFZ Working Paper, 0007/2019 + ISSN: 1662-520X

Country

Switzerland

Related Organizations

Zentral und Hochschulbibliothek Luzern
Switzerland
Lucerne University of Applied Sciences and Arts
Switzerland

Keywords

Change of numéraire, Arbitrage, Ineligible numéraire, Bessel process, Liquidity

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