Fundamental Theorem of Asset Pricing Under Transaction Costs and Model Uncertainty
Erhan Bayraktar and
Yuchong Zhang ()
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Yuchong Zhang: Department of Statistics, Columbia University, New York, New York 10027
Mathematics of Operations Research, 2016, vol. 41, issue 3, 1039-1054
We prove the fundamental theorem of asset pricing for a discrete time financial market where trading is subject to proportional transaction costs and the asset price dynamic is modeled by a family of probability measures, possibly nondominated. Using a backward-forward scheme, we show that when the market consists of a money market account and a single stock, no-arbitrage in a quasi-sure sense is equivalent to the existence of a suitable family of consistent price systems. We also show that when the market consists of multiple dynamically traded assets and satisfies efficient friction , strict no-arbitrage in a quasi-sure sense is equivalent to the existence of a suitable family of strictly consistent price systems.
Keywords: transaction costs; nondominated collection of probability measures; fundamental theorem of asset pricing; martingale selection problem (search for similar items in EconPapers)
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Working Paper: Fundamental Theorem of Asset Pricing under Transaction costs and Model uncertainty (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormoor:v:41:y:2016:i:3:p:1039-1054
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