Solution

ID: past-exam-of-the-mathematics-course-of-the-university-of-cambridge/2024/iii/paper-211/1/a/solution

An arbitrage is a finite-horizon previsible strategy with no positive initial cost, nonnegative cash flows at every date, and a strictly positive cash flow with positive probability at some date, after liquidation. Equivalently, one may require zero initial value and a nonnegative terminal gain that is positive with positive probability, after retaining intermediate cash flows in a cash account.

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