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Arbitrage theory for non convex financial market models

Emmanuel Lepinette and Tuan Tran

Stochastic Processes and their Applications, 2017, vol. 127, issue 10, 3331-3353

Abstract: We propose a unified approach where a security market is described by a liquidation value process. This allows to extend the frictionless models of the classical theory as well as the recent proportional transaction costs models to a larger class of financial markets with transaction costs including non proportional trading costs. The usual tools from convex analysis however become inadequate to characterize the absence of arbitrage opportunities in non-convex financial market models. The natural question is to which extent the results of the classical arbitrage theory are still valid. Our contribution is a first attempt to characterize the absence of arbitrage opportunities in non convex financial market models.

Keywords: Arbitrage theory; Liquidation value; Transaction costs; European options (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1016/j.spa.2017.01.011

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