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http://hdl.handle.net/2451/27021
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| Title: | Price Functionals with Bid-Ask Spreads: An Axiomatic Approach |
| Authors: | Jouini, Elyès |
| Issue Date: | May-1999 |
| Series/Report no.: | FIN-99-038 |
| Abstract: | In Jouini and Kallal (1995a), the authors characterized the absence of
arbitrage opportunities for contingent claims with cash delivery in the
presence of bid-ask spreads. Other authors obtained similar results for
a more general definition of the contingent claims but assuming some
specific price processes and transaction costs rather than bid-ask
spreads in general see for instance, Cvitanic and Karatzas, 1996). The
main difference consists in the fact that the bid-ask ratio is constant
in this last reference. This assumption does not permit to encompass
situations where the prices are determined by the buying and selling
limit orders or by a (resp. competitive) specialist (resp.
market-makers). We derive in this paper some implications from the
no-arbitrage assumption on the price functionals that generalizes all
the previous results in a very general setting. Indeed, under some
minimal assumptions on the price functional, we prove that the prices of
the contingent claims are necessarily in some minimal interval. This
result opens the way to many empirical analyses. |
| URI: | http://hdl.handle.net/2451/27021 |
| Appears in Collections: | Finance Working Papers
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