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Pricing Issues with Investment Flows

Author

Listed:
  • Clotilde Napp

    (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique)

Abstract

In this paper, we study some foundational issues in the theory of asset pricing. We consider a model where any investment opportunity is described in terms of cash flows. We do not assume that there is a numéraire, the time horizon is not supposed to be finite, the investment opportunities are not specifically related to the buying and selling of securities on a financial market. In this quite general framework, we consider different possible definitions of admissible prices for a contingent flow, mainly related to arbitrage and equilibrium considerations, and for each possible definition, we characterize the set of admissible prices.Since most market imperfections, such as short sale constraints, convex cone constraints, proportional transaction costs, no borrowing or different borrowing and lending rates, etc., can fit in the preceding model for a specific set of investment opportunities, our approach with flows provides a unified framework for the study of pricing issues in market models with frictions (including imperfections on the numéraire). We generalize existing results and we obtain them all in a unified way.

Suggested Citation

  • Clotilde Napp, 2001. "Pricing Issues with Investment Flows," Post-Print halshs-00151401, HAL.
    • Handle: RePEc:hal:journl:halshs-00151401
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    Citations

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    Cited by:

    1. Teemu Pennanen & Ari-Pekka Perkkiö, 2018. "Convex duality in optimal investment and contingent claim valuation in illiquid markets," Finance and Stochastics, Springer, vol. 22(4), pages 733-771, October.
    2. Alet Roux, 2007. "The fundamental theorem of asset pricing under proportional transaction costs," Papers 0710.2758, arXiv.org.
    3. Kallio, Markku & Ziemba, William T., 2007. "Using Tucker's theorem of the alternative to simplify, review and expand discrete arbitrage theory," Journal of Banking & Finance, Elsevier, vol. 31(8), pages 2281-2302, August.
    4. M. Dempster & I. Evstigneev & M. Taksar, 2006. "Asset Pricing and Hedging in Financial Markets with Transaction Costs: An Approach Based on the Von Neumann–Gale Model," Annals of Finance, Springer, vol. 2(4), pages 327-355, October.

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