Dynamic Arbitrage-Free Asset Pricing with Proportional Transaction Costs

Authors: ZHANG, SHUNMING¹; XU, CHUNLEI²; DENG, XIAOTIE³

Source: Mathematical Finance, Volume 12, Number 1, January 2002 , pp. 89-97(9)

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Abstract:

This paper studies multiperiod asset pricing theory in arbitrage-free financial markets with proportional transaction costs. The mathematical formulation is based on a Euclidean space for weakly arbitrage-free security markets and strongly arbitrage-free security markets. We establish the weakly arbitrage-free pricing theorem and the strongly arbitrage-free pricing theorem.

Keywords: the first fundamental valuation theorems; frictional markets; weak arbitrage-freeness; strong arbitrage-freeness; arbitrage-free pricing theory

Document Type: Short communication

DOI: http://dx.doi.org/10.1111/1467-9965.00006

Affiliations: 1: Department of Economics, The University of Western Ontario, Canada and School of Economics and Management, Tsinghua University, P.R. China, 2: Chaoyang Branch, Beijing Subsidiary Bank, China Construction Bank, P.R. China and School of Economics and Management, Tsinghua University, P.R. China, 3: Department of Computer Science, City University of Hong Kong

Publication date: 2002-01-01