The fundamental theorem of asset pricing under transaction costs
AbstractThis paper proves the fundamental theorem of asset pricing with transaction costs, when bid and ask prices follow locally bounded càdlàg (right-continuous, left-limited) processes. The robust no free lunch with vanishing risk condition (RNFLVR) for simple strategies is equivalent to the existence of a strictly consistent price system (SCPS). This result relies on a new notion of admissibility, which reflects future liquidation opportunities. The RNFLVR condition implies that admissible strategies are predictable processes of finite variation. The Appendix develops an extension of the familiar Stieltjes integral for càdlàg integrands and finite-variation integrators, which is central to modelling transaction costs with discontinuous prices. Copyright Springer-Verlag 2012
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Bibliographic InfoArticle provided by Springer in its journal Finance and Stochastics.
Volume (Year): 16 (2012)
Issue (Month): 4 (October)
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Web page: http://www.springerlink.com/content/101164/
Other versions of this item:
- Guasoni, Paolo & Lépinette-Denis, Emmanuel & Rásonyi, Miklós, 2012. "The fundamental theorem of asset pricing under transaction costs," Economics Papers from University Paris Dauphine 123456789/9300, Paris Dauphine University.
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
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