Arbitrage and deflators in illiquid markets

Details Arbitrage and deflators in illiquid markets Arbitrage and deflators in illiquid markets

2008-07-16

arxiv.org/abs/0807.2526v2

Economy

Quantitative Finance

Pricing of Securities

Scientific paper

10.1007/s00780-009-0118-8

This paper presents a stochastic model for discrete-time trading in financial markets where trading costs are given by convex cost functions and portfolios are constrained by convex sets. The model does not assume the existence of a cash account/numeraire. In addition to classical frictionless markets and markets with transaction costs or bid-ask spreads, our framework covers markets with nonlinear illiquidity effects for large instantaneous trades. In the presence of nonlinearities, the classical notion of arbitrage turns out to have two equally meaningful generalizations, a marginal and a scalable one. We study their relations to state price deflators by analyzing two auxiliary market models describing the local and global behavior of the cost functions and constraints.

Affiliated with

Also associated with

No associations

Rating

Arbitrage and deflators in illiquid markets does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.

If you have personal experience with Arbitrage and deflators in illiquid markets, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and Arbitrage and deflators in illiquid markets will most certainly appreciate the feedback.

Rate now

Comments { 0 }

Profile ID: LFWR-SCP-O-660518