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No-Arbitrage Pricing for Dividend-Paying Securities in Discrete-Time Markets with Transaction Costs

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  • Tomasz R. Bielecki
  • Igor Cialenco
  • Rodrigo Rodriguez

Abstract

We prove a version of First Fundamental Theorem of Asset Pricing under transaction costs for discrete-time markets with dividend-paying securities. Specifically, we show that the no-arbitrage condition under the efficient friction assumption is equivalent to the existence of a risk-neutral measure. We derive dual representations for the superhedging ask and subhedging bid price processes of a derivative contract. Our results are illustrated with a vanilla credit default swap contract.

Suggested Citation

  • Tomasz R. Bielecki & Igor Cialenco & Rodrigo Rodriguez, 2012. "No-Arbitrage Pricing for Dividend-Paying Securities in Discrete-Time Markets with Transaction Costs," Papers 1205.6254, arXiv.org, revised Jun 2013.
    • Handle: RePEc:arx:papers:1205.6254
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    References listed on IDEAS

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