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Arbitrage and viability in securities markets with fixed trading costs

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plugin-27-CF3008_Kallal_Napp_Arbitrage_and_Viability_in_Securities_Markets_with_Fixed_Tradind_Costs.pdf (277.9Kb)
Date
2001-04
Dewey
Economie financière
Sujet
Arbitrage; Fixed costs; Absolutely continuous martingale measure; Contingent claims pricing; Viability
JEL code
G11; D23; G12
Journal issue
Journal of Mathematical Economics
Volume
35
Number
2
Publication date
04-2001
Article pages
197-221
Publisher
Elsevier
DOI
http://dx.doi.org/10.1016/S0304-4068(00)00065-3
URI
https://basepub.dauphine.fr/handle/123456789/5593
Collections
  • CEREMADE : Publications
Metadata
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Author
Jouini, Elyès
Napp, Clotilde
Kallal, Hedi
Type
Article accepté pour publication ou publié
Abstract (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.

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