Research On Arbitrage Opportunity In Market With Asset Price Bubble

This paper mainly does research on how to find out the arbitrage opportunity when there exists price bubble in the financial market, based on the predetermined market model we assume. We at first define the bubble as the relative value between asset’s market price and fundamental price, which can explain the economic problems in a more clear and reasonable way. What we focus on in this paper is the approach investors try to follow when determine the exit time out of the market with bubble and the portfolio to hold before the bubble crashes. Reaching wealth enhancement is investors’ final goal. Finally, coding tool—Matlab is used to make the simulation and sensitivity analysis in order to illustrate the accuracy the model built and results achieved.