
Arbitrage and viability in securities markets with fixed trading costs
Jouini, Elyès; Napp, Clotilde; Kallal, Hedi (2001), Arbitrage and viability in securities markets with fixed trading costs, Journal of Mathematical Economics, 35, 2, p. 197-221. http://dx.doi.org/10.1016/S0304-4068(00)00065-3
Type
Article accepté pour publication ou publiéDate
2001-04Journal name
Journal of Mathematical EconomicsVolume
35Number
2Publisher
Elsevier
Pages
197-221
Publication identifier
Metadata
Show full item recordAbstract (EN)
This paper studies foundational issues in securities markets models with fixed costs of trading, i.e. transactions costs that are bounded regardless of the transaction size, such as fixed brokerage fees, investment taxes, operational, and processing costs or opportunity costs. We show that the absence of free lunches in such models is equivalent to the existence of a family of absolutely continuous probability measures for which the normalized securities price processes are martingales. This is a weaker condition than the absence of free lunch in frictionless models, which is equivalent to the existence of an equivalent martingale measure. We also show that the only arbitrage-free pricing rules on the set of attainable contingent claims are those that are equal to the sum of an expected value with respect to any absolutely continuous martingale measure and of a bounded fixed cost functional. Moreover, these pricing rules are the only ones to be viable as models of economic equilibrium.Subjects / Keywords
Arbitrage; Fixed costs; Absolutely continuous martingale measure; Contingent claims pricing; ViabilityRelated items
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