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Fundamental Theorem of Asset Pricing under fixed and proportional transaction costs

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  • Martin Brown
  • Tomasz Zastawniak

Abstract

We show that the lack of arbitrage in a model with both fixed and proportional transaction costs is equivalent to the existence of a family of absolutely continuous single-step probability measures, together with an adapted process with values between the bid-ask spreads that satisfies the martingale property with respect to each of the measures. This extends Harrison and Pliska's classical Fundamental Theorem of Asset Pricing to the case of combined fixed and proportional transaction costs.

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  • Martin Brown & Tomasz Zastawniak, 2019. "Fundamental Theorem of Asset Pricing under fixed and proportional transaction costs," Papers 1905.01859, arXiv.org, revised May 2019.
    • Handle: RePEc:arx:papers:1905.01859
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    References listed on IDEAS

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