Arbitrage Portfolio

Arbitrage Portfolio

Universidad del Cema

Arbitrage Portfolios

Professor Rodolfo Apreda

UNIVERSIDAD DEL CEMA

ARBITRAGE PORTFOLIOS

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• SUFFICIENT CONDITIONS WITHIN CML AND SML CONTEXTS SUFFICIENT CONDTIONS BY MEANS OF SEPARATION PORTFOLIOS AND TREYNOR LINES

Rodolfo Apreda The University of Cema Buenos Aires, Argentina

Abstract It should be expected from this paper an expansion on some distinctive issues regarding arbitrage portfolios: i) a definition on arbitrage portfolios that enables adjustments to SML and CML environments; ii) sufficient conditions to set up arbitrage portfolios against the SML and CML; iii) feasibility of separation portfolios to carry out arbitrage not only against SML but CML as well; iv) arbitrage of portfolios located in Treynor’s lines by using separation portfolios within a SML environment. Buenos Aires, 2001 Last draft July 2002
* Universidad del Cema, Room 680, Avda. Córdoba 374, Buenos Aires, Zip Code1054, Argentina. Phone Number (5411) 4 314 2269. Fax Number (5411) 314 4314. Professor Apreda holds a Ph. D. in Economics (University of Buenos Aires, 1998), and Licenciate Diplomas in Economics (University of Buenos Aires, 1983) and Mathematics (Caece University, 1978). At present, he is Full-Time Professor and Researcher at the University of Cema, and has been Visiting Scholar at the Salomon Center, Stern School of Business, New York University(2001) and The University of Delaware(2002).

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Universidad del Cema

Arbitrage Portfolios

Professor Rodolfo Apreda

INTRODUCTION Models not only provide understanding of real world complexities, but also allow taking advantage whenever the values of the underlying working variables depart from the expected values assessed by those same models. A good example of the functionality of models is given by portfolio theory. Since its inception as a subject on its own in the mainstream of Financial Economics with Markowitz (1952;1959), a string of proposals have been coming out to...