Duality and arbitrage with transactions costs: theory and applications

Michael Stutzer

No 128, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: Recent advances in duality theory have made it easier to discover relationships between asset prices and the portfolio choices based on them. But this approach to arbitrage-free securities markets has yet to be extended and applied to economies with transactions costs. This paper does so, within the context of a general state-preference model of securities markets. Several applications are developed to illustrate the nature of the theory and its potential to resolve a host of issues surrounding the effects of transactions costs on securities markets.

Keywords: Asset-liability management; Arbitrage (search for similar items in EconPapers)
Date: 1989
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmsr:128

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