No-arbitrage criteria for financial markets with efficient friction

We consider a multi-asset discrete-time model of a financial market with proportional transaction costs and efficient friction and prove necessary and sufficient conditions for the absence of arbitrage. Our main result is an extension of the Dalang-Morton-Willinger theorem. As an application, we est...

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Bibliographic Details
Published in:Finance and stochastics 2002-07, Vol.6 (3), p.371-382
Main Authors: Kabanov, Yuri, R sonyi, Mikl s, Stricker, Christophe
Format: Article
Language:English
Subjects:
Arbitrage
Friction
Hedging
Random variables
Securities markets
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Summary:We consider a multi-asset discrete-time model of a financial market with proportional transaction costs and efficient friction and prove necessary and sufficient conditions for the absence of arbitrage. Our main result is an extension of the Dalang-Morton-Willinger theorem. As an application, we establish a hedging theorem giving a description of the set of initial endowments which allows to super-replicate a given contingent claim.
ISSN:0949-2984
1432-1122
DOI:10.1007/s007800100062