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No-arbitrage criteria for financial markets with efficient friction

  • (**), 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)

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.

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Article provided by Springer in its journal Finance and Stochastics.

Volume (Year): 6 (2002)
Issue (Month): 3 ()
Pages: 371-382

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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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