Robust No Arbitrage Condition for Continuous-time Models with Transaction Costs

Emmanuel Denis
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Emmanuel Denis: Ceremade, Université Paris Dauphine, Place du Maréchal De Lattre De Tassigny 75775, Paris Cedex 16, France

Chapter 4 in Recent Advances in Financial Engineering 2010, 2011, pp 69-82 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractWe extend the Robust No Free Lunch (RNFL) theorem formulated for discrete-time models with proportional transaction costs to general continuous-time settings. We prove that the (RNFL) condition is equivalent to the existence of a strictly consistent price system, i.e. a martingale evolving in the interior of the solvency cone of all portfolio positions which can be changed into positive ones paying transaction costs.

Keywords: Operations Research; Financial Engineering; Management; Mathematical Modeling; Credit Risk; Real Options; Optimal Investment; Heterogeneous Beliefs (search for similar items in EconPapers)
Date: 2011
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