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Fundamental Theorem of Asset Pricing under fixed and proportional transaction costs

Author

Listed:
  • Martin Brown

    (University of York)

  • Tomasz Zastawniak

    (University of York)

Abstract

We show that the absence of arbitrage in a model with both fixed and proportional transaction costs is equivalent to the existence of a family of absolutely continuous single-step probability measures, together with an adapted process with values within the bid-ask intervals that satisfies the martingale property with respect to each of the measures. This extends Harrison and Pliska’s classical Fundamental Theorem of Asset Pricing to the case of combined fixed and proportional transaction costs.

Suggested Citation

  • Martin Brown & Tomasz Zastawniak, 2020. "Fundamental Theorem of Asset Pricing under fixed and proportional transaction costs," Annals of Finance, Springer, vol. 16(3), pages 423-433, September.
    • Handle: RePEc:kap:annfin:v:16:y:2020:i:3:d:10.1007_s10436-020-00367-z
    DOI: 10.1007/s10436-020-00367-z
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    References listed on IDEAS

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    More about this item

    Keywords

    Arbitrage; Transaction costs; Martingale measure;
    All these keywords.

    JEL classification:

    • C00 - Mathematical and Quantitative Methods - - General - - - General
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C65 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Miscellaneous Mathematical Tools
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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