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Pricing rules with market frictions: an axiomatic approach

Author

Listed:
  • Bernard Cornet

    (Department of Economics, University of Kansas, Lawrence, KS 66045, USA)

Abstract

This paper studies markets with frictions, taking the market price as the primitive concept, assumed to be exogenously given and defined axiomatically. To account for general types of frictions, we consider market pricing rules that go beyond the subadditive framework. However, extending the model beyond subadditivity significantly broadens the set of possible arbitrage opportunities, for example, allowing for multiple buy and sell arbitrage opportunities, which would previously have been automatically excluded by subadditivity. As in the standard theory of asset pricing, the extended framework is developed under the assumption that markets have no standard arbitrage opportunities, but also no generalized ones. Applications are provided to pricing rules represented by discounted Choquet expectations with respect to risk-neutral, nonadditive probabilities, without assuming submodularity (i.e., concavity).

Suggested Citation

  • Bernard Cornet, 2026. "Pricing rules with market frictions: an axiomatic approach," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 202606, University of Kansas, Department of Economics.
    • Handle: RePEc:kan:wpaper:202606
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    File URL: https://kuwpaper.ku.edu/2026Papers/202606.pdf
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games

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