Price functionals with bid–ask spreads: an axiomatic approach

Jouini, Elyès

Price functionals with bid–ask spreads: an axiomatic approach

Abstract: In Jouini and Kallal [Jouini, E., Kallal, H., 1995. Martinagles and arbitrage in securities markets with transaction costs. Journal of Economic Theory 66 (1) 178-197], the authors characterized the absence of arbitrage opportunities for contingent claims with cash delivery in the presence of bid–ask spreads. Other authors obtained similar results for amore general definition of the contingent claims but assuming some specific price processes and transaction costs rather than bid–ask spreadsin general (see for instance, Cvitanic and Karatzas [Cvitanic, J., Karatzas, I., 1996. Hedging andportfolio optimization under transaction costs: a martinangle approach. Mathematical Finance 6,133-166]). The main difference consists of the fact that the bid–ask ratio is constant in this lastreference. This assumption does not permit to encompass situations where the prices are determinedby the buying and selling limit orders or by a (resp. competitive) specialist (resp. market-makers).Wederive in this paper some implications from the no-arbitrage assumption on the price functionalsthat generalizes all the previous results in a very general setting. Indeed, under some minimalassumptions on the price functional, we prove that the prices of the contingent claims are necessarilyin some minimal interval. This result opens the way to many empirical analyses

Keywords: Price functionals; Bid–ask spreads; No-arbitrage assumption; Market-makers; Contingent claims (search for similar items in EconPapers)
Date: 2000
References: Add references at CitEc
Citations: View citations in EconPapers (23)

Published in Journal of Mathematical Economics, 2000, 34, pp.547-558

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Price functionals with bid-ask spreads: an axiomatic approach (2000)
Working Paper: Price Functionals with Bid-Ask Spreads: An Axiomatic Approach (1999)
Working Paper: Price Functionals with Bid-Ask Spreads: An Axiomatic Approach (1997)
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:hal:journl:halshs-00167144

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().