Arbitrage in markets with bid-ask spreads
Pricing of Securities
2014-07-15 v1 Probability
Portfolio Management
Abstract
In this paper a finite discrete time market with an arbitrary state space and bid-ask spreads is considered. The notion of an equivalent bid-ask martingale measure (EBAMM) is introduced and the fundamental theorem of asset pricing is proved using (EBAMM) as an equivalent condition for no-arbitrage. The Cox-Ross-Rubinstein model with bid-ask spreads is presented as an application of our results.
Keywords
Cite
@article{arxiv.1407.3372,
title = {Arbitrage in markets with bid-ask spreads},
author = {Przemysław Rola},
journal= {arXiv preprint arXiv:1407.3372},
year = {2014}
}
Comments
18 pages, 3 figures