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On the Pricing of Contingent Claims with Frictions

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  • A. Bensoussan
  • H. Julien

Abstract

This paper studies the problem of pricing contingent claims in a market which has frictions in the form of costs, such as penalty functions corresponding to constraints. An arbitrage‐free interval is identified, and a fair price based upon utility functions is proposed. It provides a framework to study incomplete markets that is simplier than the one related to constraints on portfolios introduced by Karatzas and Kou.

Suggested Citation

  • A. Bensoussan & H. Julien, 2000. "On the Pricing of Contingent Claims with Frictions," Mathematical Finance, Wiley Blackwell, vol. 10(2), pages 89-108, April.
    • Handle: RePEc:bla:mathfi:v:10:y:2000:i:2:p:89-108
    DOI: 10.1111/1467-9965.00083
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    Cited by:

    1. repec:dau:papers:123456789/7471 is not listed on IDEAS
    2. Alet Roux, 2007. "The fundamental theorem of asset pricing under proportional transaction costs," Papers 0710.2758, arXiv.org.

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