No-Arbitrage Pricing for Dividend-Paying Securities in Discrete-Time Markets with Transaction Costs
General Finance
2013-06-13 v2 Probability
Abstract
We prove a version of First Fundamental Theorem of Asset Pricing under transaction costs for discrete-time markets with dividend-paying securities. Specifically, we show that the no-arbitrage condition under the efficient friction assumption is equivalent to the existence of a risk-neutral measure. We derive dual representations for the superhedging ask and subhedging bid price processes of a derivative contract. Our results are illustrated with a vanilla credit default swap contract.
Keywords
Cite
@article{arxiv.1205.6254,
title = {No-Arbitrage Pricing for Dividend-Paying Securities in Discrete-Time Markets with Transaction Costs},
author = {Tomasz R. Bielecki and Igor Cialenco and Rodrigo Rodriguez},
journal= {arXiv preprint arXiv:1205.6254},
year = {2013}
}
Comments
Forthcoming in Mathematical Finance