Advanced Search
MyIDEAS: Login to save this paper or follow this series

Asset pricing and hedging in financial markets with transaction costs: an approach based on the von Neumann-Gale model

Contents:

Author Info

  • M A H Dempster

    ()
    (Centre for Financial Research, Judge Business School, University of Cambridge)

  • I V Evstigneev

    ()
    (Economic Studies, School of Social Sciences, University of Manchester)

  • M I Taksar

    ()
    (Mathematics Department, University of Missouri)

Abstract

The paper develops a general discrete-time framework for asset pricing and hedging in financial markets with proportional transaction costs and trading constraints. The framework is suggested by analogies between dynamic models of financial markets and (stochastic versions of) the von Neumann-Gale model of economic growth. The main results are hedging criteria stated in terms of "dual variables" -- consistent prices and consistent discount factors. It is shown how these results can be applied to a number of specialized models involving transaction costs and portfolio restrictions.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www-cfr.jbs.cam.ac.uk/archive/PAPERS/2005/WP06.pdf
Our checks indicate that this address may not be valid because: 500 Can't connect to www-cfr.jbs.cam.ac.uk:80 (Bad hostname). If this is indeed the case, please notify (Michael Dempster)
File Function: Working paper version, 2005
Download Restriction: no

Bibliographic Info

Paper provided by University of Cambridge, Judge Business School, Centre for Financial Research in its series Working Papers with number 062005.

as in new window
Length: 51 pages
Date of creation: 2005
Date of revision:
Publication status: Published in Annals of Finance 2.2 (2006), pages 327-355
Handle: RePEc:jbs:wpaper:062005

Contact details of provider:
Postal: Trumpington Street, Cambridge, CB2 1AG
Phone: +44 (0) 1223 339641
Fax: +44 (0) 1223 339652
Email:
Web page: http://www-cfr.jbs.cam.ac.uk/
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Elyès Jouini & Hédi Kallal, 1999. "Viability and Equilibrium in Securities Markets with Frictions," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-036, New York University, Leonard N. Stern School of Business-.
  2. Jouini, Elyes, 2000. "Price functionals with bid-ask spreads: an axiomatic approach," Journal of Mathematical Economics, Elsevier, vol. 34(4), pages 547-558, December.
  3. Jouini, Elyès & Napp, Clotilde, 2001. "Arbitrage and investment opportunities," Economics Papers from University Paris Dauphine 123456789/5591, Paris Dauphine University.
  4. Igor V. Evstigneev & Klaus Schürger & Michael I. Taksar, 2002. "On the fundamental theorem of asset pricing: random constraints and bang-bang no-arbitrage criteria," Bonn Econ Discussion Papers bgse24_2002, University of Bonn, Germany.
  5. repec:fth:inseep:9513 is not listed on IDEAS
  6. Jouini, Elyes, 2001. "Arbitrage and control problems in finance: A presentation," Journal of Mathematical Economics, Elsevier, vol. 35(2), pages 167-183, April.
  7. Jouini Elyes & Kallal Hedi, 1995. "Martingales and Arbitrage in Securities Markets with Transaction Costs," Journal of Economic Theory, Elsevier, vol. 66(1), pages 178-197, June.
  8. Y.M. Kabanov, 1999. "Hedging and liquidation under transaction costs in currency markets," Finance and Stochastics, Springer, vol. 3(2), pages 237-248.
  9. Elyégs Jouini & Hédi Kallal, 1995. "Arbitrage In Securities Markets With Short-Sales Constraints," Mathematical Finance, Wiley Blackwell, vol. 5(3), pages 197-232.
  10. Jouini, Elyès, 2001. "Arbitrage and control problems in finance: A presentation," Economics Papers from University Paris Dauphine 123456789/5590, Paris Dauphine University.
  11. repec:fth:inseep:9514 is not listed on IDEAS
  12. Kreps, David M., 1981. "Arbitrage and equilibrium in economies with infinitely many commodities," Journal of Mathematical Economics, Elsevier, vol. 8(1), pages 15-35, March.
  13. Harrison, J. Michael & Pliska, Stanley R., 1981. "Martingales and stochastic integrals in the theory of continuous trading," Stochastic Processes and their Applications, Elsevier, vol. 11(3), pages 215-260, August.
  14. Kallal, Hedi & Jouini, Elyès, 1995. "Martingales and arbitrage in securities markets with transaction costs," Economics Papers from University Paris Dauphine 123456789/5630, Paris Dauphine University.
  15. Jouini, Elyès & Kallal, Hedi, 1999. "Viability and equilibrium in securities markets with frictions," Economics Papers from University Paris Dauphine 123456789/5603, Paris Dauphine University.
  16. Jouini, Elyès & Kallal, Hedi, 1995. "Arbitrage in securities markets with short-sales constraints," Economics Papers from University Paris Dauphine 123456789/5647, Paris Dauphine University.
  17. Elyès Jouini, 2001. "Arbitrage and investment opportunities," Finance and Stochastics, Springer, vol. 5(3), pages 305-325.
  18. Napp, Clotilde, 2001. "Pricing issues with investment flows Applications to market models with frictions," Journal of Mathematical Economics, Elsevier, vol. 35(3), pages 383-408, June.
  19. Kabanov, Yu. M. & Stricker, Ch., 2001. "The Harrison-Pliska arbitrage pricing theorem under transaction costs," Journal of Mathematical Economics, Elsevier, vol. 35(2), pages 185-196, April.
  20. Harrison, J. Michael & Kreps, David M., 1979. "Martingales and arbitrage in multiperiod securities markets," Journal of Economic Theory, Elsevier, vol. 20(3), pages 381-408, June.
  21. Bernard Bensaid & Jean-Philippe Lesne & Henri Pagès & José Scheinkman, 1992. "Derivative Asset Pricing With Transaction Costs," Mathematical Finance, Wiley Blackwell, vol. 2(2), pages 63-86.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Ha-Young Kim & Frederi Viens, 2012. "Portfolio optimization in discrete time with proportional transaction costs under stochastic volatility," Annals of Finance, Springer, vol. 8(2), pages 405-425, May.
  2. I. V. Evstigneev & K. R. Schenk-Hoppé, 2006. "VPure and Randomized Equilibria in the Stochastic von Neumann-Gale model," The School of Economics Discussion Paper Series 0603, Economics, The University of Manchester.
  3. Roux, Alet, 2011. "The fundamental theorem of asset pricing in the presence of bid-ask and interest rate spreads," Journal of Mathematical Economics, Elsevier, vol. 47(2), pages 159-163, March.
  4. Wael Bahsoun & Igor V. Evstigneev & Michael I. Taksar, 2009. "Growth-optimal investments and numeraire portfolios under transaction costs: An analysis based on the von Neumann-Gale model," Papers 0909.4730, arXiv.org.
  5. Li, Wu, 2008. "A multi-agent growth model based on the von Neumann-Leontief framework," MPRA Paper 11302, University Library of Munich, Germany.
  6. Alet Roux, 2007. "The fundamental theorem of asset pricing under proportional transaction costs," Papers 0710.2758, arXiv.org.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:jbs:wpaper:062005. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael Dempster) The email address of this maintainer does not seem to be valid anymore. Please ask Michael Dempster to update the entry or send us the correct address.

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.