Abstract - Economics Research Reports


Dynamic Arbitrage-free Asset Pricing with Proportional Transaction Costs

By Xiaotie Deng, Chunlei Xu and Shunming Zhang (University of Western Ontario)

September, 2000

This paper studies arbitrage-free conditions for multiperiod asset pricing in frictional financial markets with proportional transaction costs. We consider the Euclidean space for weakly arbitrage-free security markets and strongly arbitrage-free security markets, and establish the weakly arbitrage-free pricing theorem and the strongly arbitrage-free pricing theorem.

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