An equity market admits relative arbitrage if there exist two portfolios of equal initial value, one of which is guaranteed not to underperform the other at some specified time, while having a positive probability of outperforming the other at that time. Relative arbitrage cannot exist if the underlying market possesses an equivalent martingale measure; however, the situation is reversed under one of a number of surprisingly weak properties of the volatility structure of the market. This talk will provide a survey of these properties as well as the methodologies used to establish the existence of relative arbitrage. ( Slides)
Speaker: Adrian Banner, INTECH