Viable Costs and Equilibrium Prices in Frictional Securities Markets

Zhiwu Chen

Annals of Economics and Finance, 2001, vol. 2, issue 2, 297-323

Abstract: This paper studies security markets with trading frictions, and offers a complete characterization of viable convex cost systems. For frictional markets that give rise to a convex-cone traded-payoff span and a sublinear payoff cost functional, the following three conditions are equivalent: viability, the extension property, and the absence of free lunches. Special cases in this class of markets include perfect-markets economies [Harrison and Kreps (1979)], economies with proportional transaction costs [Jouini and Kallal (1992, 1995)], economies with solvency constraints [Hindy (1995)], economies with no-short-selling, and economies with any combination of these frictions.

Keywords: Frictional markets; Viable price system; No arbitrage; Free lunches; Sublinear price functional; Market frictions (search for similar items in EconPapers)
JEL-codes: G10 G12 G20 (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:cuf:journl:y:2001:v:2:i:2:p:297-323

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