On the market viability under proportional transaction costs

Erhan Bayraktar and Xiang Yu

Mathematical Finance, 2018, vol. 28, issue 3, 800-838

Abstract: This paper studies the market viability with proportional transaction costs. Instead of requiring the existence of strictly consistent price systems as in the literature, we show that strictly consistent local martingale systems (SCLMS) can successfully serve as the dual elements such that the market viability can be verified. We introduce two weaker notions of no arbitrage conditions on market models named no unbounded profit with bounded risk (NUPBR) and no local arbitrage with bounded portfolios (NLABPs). In particular, we show that the NUPBR and NLABP conditions in the robust sense are equivalent to the existence of SCLMS for general market models. We also discuss the implications for the utility maximization problem.

Date: 2018
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Citations: View citations in EconPapers (11)

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https://doi.org/10.1111/mafi.12155

Related works:
Working Paper: On the Market Viability under Proportional Transaction Costs (2017)
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