Fundamental Theorem of Asset Pricing under fixed and proportional transaction costs

Martin Brown () and Tomasz Zastawniak ()
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Martin Brown: University of York
Tomasz Zastawniak: University of York

Annals of Finance, 2020, vol. 16, issue 3, No 5, 423-433

Abstract: Abstract We show that the absence of arbitrage in a model with both fixed and proportional transaction costs is equivalent to the existence of a family of absolutely continuous single-step probability measures, together with an adapted process with values within the bid-ask intervals that satisfies the martingale property with respect to each of the measures. This extends Harrison and Pliska’s classical Fundamental Theorem of Asset Pricing to the case of combined fixed and proportional transaction costs.

Keywords: Arbitrage; Transaction costs; Martingale measure (search for similar items in EconPapers)
JEL-codes: C00 C61 C65 G10 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s10436-020-00367-z

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