IDEAS home Printed from https://ideas.repec.org/p/fip/fedmsr/128.html
   My bibliography  Save this paper

Duality and arbitrage with transactions costs: theory and applications

Author

Listed:
  • Michael J. Stutzer

Abstract

Recent advances in duality theory have made it easier to discover relationships between asset prices and the portfolio choices based on them. But this approach to arbitrage-free securities markets has yet to be extended and applied to economies with transactions costs. This paper does so, within the context of a general state-preference model of securities markets. Several applications are developed to illustrate the nature of the theory and its potential to resolve a host of issues surrounding the effects of transactions costs on securities markets.

Suggested Citation

  • Michael J. Stutzer, 1989. "Duality and arbitrage with transactions costs: theory and applications," Staff Report 128, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmsr:128
    as

    Download full text from publisher

    File URL: http://www.minneapolisfed.org/research/common/pub_detail.cfm?pb_autonum_id=409
    Download Restriction: no
    File URL: http://minneapolisfed.org/research/sr/sr128.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. He, Hua & Pearson, Neil D., 1991. "Consumption and portfolio policies with incomplete markets and short-sale constraints: The infinite dimensional case," Journal of Economic Theory, Elsevier, vol. 54(2), pages 259-304, August.
    2. Mark B. Garman., 1980. "A Synthesis of the Pure Theory of Arbitrage," Research Program in Finance Working Papers 98, University of California at Berkeley.
    3. Green, Richard C & Srivastava, Sanjay, 1985. "Risk Aversion and Arbitrage," Journal of Finance, American Finance Association, vol. 40(1), pages 257-268, March.
    4. Varian, Hal R, 1985. "Divergence of Opinion in Complete Markets: A Note," Journal of Finance, American Finance Association, vol. 40(1), pages 309-317, March.
    5. Dothan, Michael U., 1990. "Prices in Financial Markets," OUP Catalogue, Oxford University Press, number 9780195053128.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Suresh M. Sundaresan, 2000. "Continuous‐Time Methods in Finance: A Review and an Assessment," Journal of Finance, American Finance Association, vol. 55(4), pages 1569-1622, August.
    2. repec:dau:papers:123456789/5374 is not listed on IDEAS
    3. Zapatero, Fernando, 1998. "Effects of financial innovations on market volatility when beliefs are heterogeneous," Journal of Economic Dynamics and Control, Elsevier, vol. 22(4), pages 597-626, April.
    4. Söderlind, Paul, 2009. "The C-CAPM without ex post data," Journal of Macroeconomics, Elsevier, vol. 31(4), pages 721-729, December.
    5. Bernard Dumas & Andrew Lyasoff, 2012. "Incomplete-Market Equilibria Solved Recursively on an Event Tree," Journal of Finance, American Finance Association, vol. 67(5), pages 1897-1941, October.
    6. Christian Gourieroux & Jean Paul Laurent & Huyên Pham, 1998. "Mean‐Variance Hedging and Numéraire," Mathematical Finance, Wiley Blackwell, vol. 8(3), pages 179-200, July.
    7. Brockman, Paul & Chung, Dennis Y., 2000. "An empirical investigation of trading on asymmetric information and heterogeneous prior beliefs," Journal of Empirical Finance, Elsevier, vol. 7(5), pages 417-454, December.
    8. Kurz, Mordecai, 2008. "Beauty contests under private information and diverse beliefs: How different?," Journal of Mathematical Economics, Elsevier, vol. 44(7-8), pages 762-784, July.
    9. Kleinow, Torsten & Willder, Mark, 2007. "The effect of management discretion on hedging and fair valuation of participating policies with maturity guarantees," Insurance: Mathematics and Economics, Elsevier, vol. 40(3), pages 445-458, May.
    10. Chen, Cathy Yi-Hsuan & Fengler, Matthias R. & Härdle, Wolfgang Karl & Liu, Yanchu, 2022. "Media-expressed tone, option characteristics, and stock return predictability," Journal of Economic Dynamics and Control, Elsevier, vol. 134(C).
    11. Thai Nguyen & Mitja Stadje, 2020. "Utility maximization under endogenous pricing," Papers 2005.04312, arXiv.org, revised Mar 2024.
    12. Christian Gollier, 2007. "Whom should we believe? Aggregation of heterogeneous beliefs," Journal of Risk and Uncertainty, Springer, vol. 35(2), pages 107-127, October.
    13. Carole Bernard & Franck Moraux & Ludger R�schendorf & Steven Vanduffel, 2015. "Optimal payoffs under state-dependent preferences," Quantitative Finance, Taylor & Francis Journals, vol. 15(7), pages 1157-1173, July.
    14. Jorgensen, Bjorn & Li, Jing & Sadka, Gil, 2012. "Earnings dispersion and aggregate stock returns," Journal of Accounting and Economics, Elsevier, vol. 53(1), pages 1-20.
    15. Christoph Belak & An Chen & Carla Mereu & Robert Stelzer, 2014. "Optimal investment with time-varying stochastic endowments," Papers 1406.6245, arXiv.org, revised Feb 2022.
    16. Haluk Yener & Fuat Can Beylunioglu, 2017. "Outperforming A Stochastic Benchmark Under Borrowing And Rectangular Constraints," Working Papers 1701, The Center for Financial Studies (CEFIS), Istanbul Bilgi University.
    17. Gerrard, Russell & Kyriakou, Ioannis & Nielsen, Jens Perch & Vodička, Peter, 2023. "On optimal constrained investment strategies for long-term savers in stochastic environments and probability hedging," European Journal of Operational Research, Elsevier, vol. 307(2), pages 948-962.
    18. Mark Wong & Adrian Wai Kong Cheung & Wei Hu, 2021. "When two anomalies meet: Volume and timing effects on earnings announcements," The Financial Review, Eastern Finance Association, vol. 56(2), pages 355-380, May.
    19. Paolo Guasoni & Gu Wang, 2020. "Consumption in incomplete markets," Finance and Stochastics, Springer, vol. 24(2), pages 383-422, April.
    20. Lane P. Hughston & Leandro S'anchez-Betancourt, 2023. "Valuation of a Financial Claim Contingent on the Outcome of a Quantum Measurement," Papers 2305.10239, arXiv.org, revised Oct 2023.
    21. Andreas Fuster & Paul S. Willen, 2011. "Insuring Consumption Using Income-Linked Assets," Review of Finance, European Finance Association, vol. 15(4), pages 835-873.

    More about this item

    Keywords

    Asset-liability management; Arbitrage;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedmsr:128. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kate Hansel (email available below). General contact details of provider: https://edirc.repec.org/data/cfrbmus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.