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No-arbitrage criteria for financial markets with efficient friction

Author

Listed:
  • (**), Christophe Stricker

    (Laboratoire de Mathématiques, Université de Franche-Comté, 16 Route de Gray, 25030 Besançon, Cedex France)

  • (*), Miklós Rásonyi

    (Computer and Automation Institute of the Hungarian Academy of Sciences, 1111 Budapest, Hungary Manuscript)

  • Yuri Kabanov

    (Laboratoire de Mathématiques, Université de Franche-Comté, 16 Route de Gray, 25030 Besançon, Cedex France)

Abstract

We consider a multi-asset discrete-time model of a financial market with proportional transaction costs and efficient friction and prove necessary and sufficient conditions for the absence of arbitrage. Our main result is an extension of the Dalang-Morton-Willinger theorem. As an application, we establish a hedging theorem giving a description of the set of initial endowments which allows to super-replicate a given contingent claim.

Suggested Citation

  • (**), Christophe Stricker & (*), Miklós Rásonyi & Yuri Kabanov, 2002. "No-arbitrage criteria for financial markets with efficient friction," Finance and Stochastics, Springer, vol. 6(3), pages 371-382.
    • Handle: RePEc:spr:finsto:v:6:y:2002:i:3:p:371-382
    Note: received: February 2001; final version received: September 2001
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    More about this item

    Keywords

    Transaction costs; arbitrage; hedging; solvency;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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