The fundamental theorem of asset pricing under transaction costs

Paolo Guasoni (), Emmanuel Lépinette and Miklós Rásonyi ()

Finance and Stochastics, 2012, vol. 16, issue 4, 777 pages

Abstract: This paper proves the fundamental theorem of asset pricing with transaction costs, when bid and ask prices follow locally bounded càdlàg (right-continuous, left-limited) processes. The robust no free lunch with vanishing risk condition (RNFLVR) for simple strategies is equivalent to the existence of a strictly consistent price system (SCPS). This result relies on a new notion of admissibility, which reflects future liquidation opportunities. The RNFLVR condition implies that admissible strategies are predictable processes of finite variation. The Appendix develops an extension of the familiar Stieltjes integral for càdlàg integrands and finite-variation integrators, which is central to modelling transaction costs with discontinuous prices. Copyright Springer-Verlag 2012

Keywords: Arbitrage; Fundamental theorem of asset pricing; Transaction costs; Admissible strategies; Finite variation; 91B28; 62P05; 26A45; 60H05; G12 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (38)

Downloads: (external link)
http://hdl.handle.net/10.1007/s00780-012-0185-0 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:finsto:v:16:y:2012:i:4:p:741-777

Ordering information: This journal article can be ordered from
http://www.springer. ... ance/journal/780/PS2

DOI: 10.1007/s00780-012-0185-0

Access Statistics for this article

Finance and Stochastics is currently edited by M. Schweizer

More articles in Finance and Stochastics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().