Advanced Search
: Login

# Arbitrage with fixed costs and interest rate models

## Author Info

• Elyès Jouini

(Dauphine)

• Hedi Kallal

(Citadel investment Group)

• Clotilde Napp

(Dauphine & CREST)

Registered author(s):

## Abstract

In this paper, we start by considering market models with fixed costs; in such a context, we characterize the absence of arbitrage opportunity and we provide pricing rules. We then apply these results to extend some classical interest rate and option pricing models. In particular, we prove that the quite surprising result obtained by Dybvig-Ingersoll-Ross $\left( 1996\right)$, which asserts that, under the assumption of absence of arbitrage, long zero-coupon rates can never fall, is no longer true in models with fixed costs. Models where the long rate follows a diffusion process as in Brennan-Schwartz $\left( 1979\right)$ are no more to be rejected for arbitrage considerations.

## 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://128.118.178.162/eps/fin/papers/0312/0312002.pdf
Download Restriction: no

## Bibliographic Info

Paper provided by EconWPA in its series Finance with number 0312002.

as in new window
Length:
Date of creation: 05 Dec 2003
Date of revision:
Handle: RePEc:wpa:wuwpfi:0312002

Note: Type of Document - pdf; prepared on Win98
Contact details of provider:
Web page: http://128.118.178.162

## Related research

Keywords: fixed costs; transaction costs; interest rates; long zero- coupon rates; Dybvig-Ingersoll-Ross;

Other versions of this item:

Find related papers by JEL classification:
• G - Financial Economics

This paper has been announced in the following NEP Reports:

## References

No references listed on IDEAS
You can help add them by filling out this form.

## 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:wpa:wuwpfi:0312002. 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: (EconWPA).

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.