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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27364
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| Title: | Arbitrage And Viability in Securities Markets With Fixed Trading Costs |
| Authors: | Jouini, Elyes
Kallal, Hedi
Napp, Clotilde |
| Keywords: | arbitrage - fixed costs
absolutely continuous martin
gale measure
contingent claims pricing
viability |
| Issue Date: | Jul-1999 |
| Series/Report no.: | S-MF-99-06 |
| Abstract: | This paper studies foundational issues in securities markets models with
fixed costs of trading, i.e. transaction 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 price processes are
martingales, conditional to any possible future event. This is a weaker
condition than the absence of free lunches 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. |
| URI: | http://hdl.handle.net/2451/27364 |
| Appears in Collections: | Macro Finance
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