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Asset pricing and hedging in financial markets with fixed and proportional transaction costs

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  • Esmaeil Babaei

    (The Manchester Metropolitan University)

Abstract

We establish the asset pricing and hedging principle in a financial market model, which is a specific case of the von Neumann-Gale dynamical system, with both fixed and proportional transaction costs and trading constraints. The main results are hedging criteria stated in terms of consistent valuation systems, generalizing the notion of an equivalent martingale measure.

Suggested Citation

  • Esmaeil Babaei, 2024. "Asset pricing and hedging in financial markets with fixed and proportional transaction costs," Annals of Finance, Springer, vol. 20(2), pages 259-275, June.
    • Handle: RePEc:kap:annfin:v:20:y:2024:i:2:d:10.1007_s10436-024-00441-w
    DOI: 10.1007/s10436-024-00441-w
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    More about this item

    Keywords

    Von Neumann–Gale dynamical systems; Asset pricing; Hedging; Consistent valuation systems; Transaction costs; Portfolio constraints;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C65 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Miscellaneous Mathematical Tools
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models

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