On the Market Viability under Proportional Transaction Costs

Erhan Bayraktar and Xiang Yu

Papers from arXiv.org

Abstract: This paper studies the market viability with proportional transaction costs. Instead of requiring the existence of strictly consistent price systems (SCPS) as in the literature, we show that strictly consistent local martingale systems (SCLMS) can successfully serve as the dual elements such that the market viability can be verified. We introduce two weaker notions of no arbitrage conditions on market models named no unbounded profit with bounded risk (NUPBR) and no local arbitrage with bounded portfolios (NLABP). In particular, we show that the NUPBR and NLABP conditions in the robust sense for the smaller bid-ask spreads is the equivalent characterization of the existence of SCLMS for general market models. We also discuss the implications for the utility maximization problem.

Date: 2013-12, Revised 2017-01
New Economics Papers: this item is included in nep-upt
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Citations: View citations in EconPapers (3)

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Journal Article: On the market viability under proportional transaction costs (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1312.3917

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