Pulido, Nino. 2010. Financial Markets With Short Sales Prohibition. Doctoral
Dissertation, Cornell University.
It is widely thought that
short selling practices are a check against speculation and provide hedging
mechanisms for many financial investments. Yet, due to its controversial
character during economic downturns, regulators have banned short selling in
many occasions. In addition, short sales prohibitions are inherent to the
majority of emerging markets, commodity markets and the housing market. In this
dissertation, we analyze the consequences of short sales prohibition in general
semi-martingale financial models. We first prove the Fundamental Theorem of
Asset Pricing in continuous time financial models with short sales prohibition
and where prices are driven by locally bounded semi-martingales. We then study
the theoretical behavior of futures prices in these models. Finally, under our
framework, we extend some of the classical results on the hedging problem to
general semi-martingale financial models and present a financial connection to
the concept of maximal claims.
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