No-Arbitrage Pricing for Dividend-Paying Securities in Discrete-Time Markets with Transaction Costs

2012/05/29 by Tomasz R. Bielecki, Bielecki, Tomasz R., Igor Cialenco +3
Economics, Econometrics and Finance · Mathematics · #46A20 #46N10 #60G42 #91B25 #FOS: Economics and business #FOS: Mathematics #General Finance (q-fin.GN) #Probability (math.PR) #math.PR #msc:46A20 #msc:46N10 #msc:60G42 #msc:91B25 #q-fin.GN

paper · pdf · doi:10.48550/arxiv.1205.6254

Forthcoming in Mathematical Finance

arxiv created 2013/06/12 · arxiv updated 2013/06/13

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.

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