Download or read book Arbitrage and Equilibrium Under Transaction Costs written by Hedi Diego Kallal and published by . This book was released on 1992 with total page 180 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Equilibrium and Arbitrage with Transaction Costs written by Michael Aczel and published by . This book was released on 1987 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book A Note on Arbitrage Under Transaction Costs written by Albrecht Irle and published by . This book was released on 2008 with total page 7 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Dynamic Arbitrage free Asset Pricing with Proportional Transaction Costs written by Xiaotie Deng and published by London : Department of Economics, University of Western Ontario. This book was released on 2000 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Arbitrage Theory written by Jochen E.M. Wilhelm and published by Springer Science & Business Media. This book was released on 2012-12-06 with total page 124 pages. Available in PDF, EPUB and Kindle. Book excerpt: The present 'Introductory Lectures on Arbitrage-based Financial Asset Pricing' are a first attempt to give a comprehensive presentation of Arbitrage Theory in a discrete time framework (by the way: all the re sults given in these lectures apply to a continuous time framework but, probably, in continuous time we could achieve stronger results - of course at the price of stronger assumptions). It has been turned out in the last few years that capital market theory as derived and evolved from the capital asset pricing model (CAPM) in the middle sixties, can, to an astonishing extent, be based on arbitrage arguments only, rather than on mean-variance preferences of investors. On the other hand, ar bitrage arguments provided access to a wider range of results which could not be obtained by standard CAPM-methods, e. g. the valuation of contingent claims (derivative assets) Dr the_ investigation of futures prices. To some extent the presentation will loosely follow historical lines. A selected set of capital asset pricing models will be derived according to their historical progress and their increasing complexity as well. It will be seen that they all share common structural properties. After having made this observation the presentation will become an axiomatical one: it will be stated in precise terms what arbitrage is about and what the consequences are if markets do not allow for risk-free arbitrage opportunities. The presentation will partly be accompanied by an illus trating example: two-state option pricing.
Download or read book The Estimation of Transaction Costs in Arbitrage Models written by Pablo Tomas Spiller and published by . This book was released on 1986 with total page 18 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book One way Arbitrage with Transaction Costs written by Daniel Po-ming Chan and published by . This book was released on 1993 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Arbitrage and Viability in Securities Markets with Fixed Trading Costs written by Elyes Jouini and published by . This book was released on 2015 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies foundational issues in securities markets models with fixed costs of trading, i.e. transaction costs that are bounded regardless of the transaction size, such as fixed brokerage fees, investment taxes, operational and processing costs, or opportunity costs. We show that the absence of free lunches in such models is equivalent to the existence of a family of absolutely continuous probability measures for which the normalized price processes are martingales, conditional to any possible future event. This is a weaker condition than the absence of free lunches in frictionless models, which is equivalent to the existence of an equivalent martingale measure. We also show that the only arbitrage free pricing rules on the set of attainable contingent claims are those that are equal to the sum of an expected value with respect to any absolutely continuous martingale measure and of a bounded fixed cost functional. Moreover, these pricing rules are the only ones to be viable as models of economic equilibrium.
Download or read book Arbitrage and theory of valuation in non linear markets written by Tuncay Pekin and published by . This book was released on 2001 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Arbitrage opportunities can be loosely defined as oportnities to make riskless profits on an arbitrarily large scale. Arbitrage concept is the basic technique of analysis in various models in modem finance theory including the Modigliani and Miller's work on the financial structure of the firm and the Black and Scholes Option Pricing Model. In this work, the implications of the absence of arbitrage in a two period security-spot market economy where security pricing operators are non-linear are studied. Non-linear asset pricing is a basic issue in finance that may arise from market frictions like transaction costs. Starting from a formulation of an abstract economy , a review of the established theory of arbitrage is made. Equilibrium concepts for economies in the senses of Arrow-Debreu and Radner are given. The no arbitrage condition is then extended to these economies through the equivalence between Arrow-Debreu and Radner equilibrium allocations. The arbitrage analysis for the Radner economy is generalised to an infinite dimensional case by introducing relevant mathematical techniques. Later, the two period security-spot market economy is modified by allowing the security pricing operators to be non-linear to account for various kind of market frictions. Specifically , this is done by removing the linearity assumption on the asset pricing operator while retaining the linear space assumption for its domain. A geometric visualisation of the set of income transfers for such an economy is constructed. It is seen that the assumption that there are no arbitrage opportunities has different implications for frictional markets as characterised by non-linear asset pricing operators and for frictionless markets.Introduction of non-linearity is seen to induce various phenomena that are not seen in canonical security-spot market economies like the presence of limited arbitrage opportunities.
Download or read book Equilibrium in a Market with Sequential Bargaining and No Transaction Costs is Walrasian written by Douglas Gale and published by . This book was released on 1984 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Applied Conic Finance written by Dilip Madan and published by Cambridge University Press. This book was released on 2016-10-13 with total page 205 pages. Available in PDF, EPUB and Kindle. Book excerpt: This is a comprehensive introduction to the brand new theory of conic finance, also referred to as the two-price theory, which determines bid and ask prices in a consistent and fundamentally motivated manner. Whilst theories of one price classically eliminate all risk, the concept of acceptable risks is critical to the foundations of the two-price theory which sees risk elimination as typically unattainable in a modern financial economy. Practical examples and case studies provide the reader with a comprehensive introduction to the fundamentals of the theory, a variety of advanced quantitative models, and numerous real-world applications, including portfolio theory, option positioning, hedging, and trading contexts. This book offers a quantitative and practical approach for readers familiar with the basics of mathematical finance to allow them to boldly go where no quant has gone before.
Download or read book Mathematical Finance Bachelier Congress 2000 written by Helyette Geman and published by Springer Science & Business Media. This book was released on 2013-11-11 with total page 522 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Bachelier Society for Mathematical Finance held its first World Congress in Paris last year, and coincided with the centenary of Louis Bacheliers thesis defence. In his thesis Bachelier introduces Brownian motion as a tool for the analysis of financial markets as well as the exact definition of options. The thesis is viewed by many the key event that marked the emergence of mathematical finance as a scientific discipline. The prestigious list of plenary speakers in Paris included two Nobel laureates, Paul Samuelson and Robert Merton, and the mathematicians Henry McKean and S.R.S. Varadhan. Over 130 further selected talks were given in three parallel sessions. .
Download or read book Hysteresis Bands Holding Period and Transaction Costs written by Bernard Dumas and published by . This book was released on 2015 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the presence of transactions costs, no matter how small, arbitrage activity does not necessarily render equal all riskless rates of return. When two such rates follow stochastic processes, it is not optimal immediately to arbitrage out any discrepancy that arises between them. The reason is that immediate arbitrage would induce a deጿinite expenditure of transactions costs whereas, without arbitrage intervention, there exists some, perhaps sufficient, probability that these two interest rates will come back together without any costs having been incurred. Hence, one can surmise that at equilibrium the ጿinancial market will permit the coexistence of two riskless rates that are not equal to each other. For analogous reasons, randomly flĵuctuating expected rates of return on risky assets will be allowed to differ even after correction for risk, leading to important violations of the Capital Asset Pricing Model. The combination of randomness in expected rates of return and proportional transactions costs is a serious blow to existing frictionless pricing models.
Download or read book Mispricing and Costly Arbitrage written by Ronnie Sadka and published by . This book was released on 2008 with total page 20 pages. Available in PDF, EPUB and Kindle. Book excerpt: The equilibrium magnitude of mispricing can be no greater than the cost of arbitraging it away. Yet, mispricing typically arises when the uncertainty about a firm is high, which is precisely when the stock's liquidity is low. This is the case for stocks with high analyst disagreement about future earnings. These stocks tend to be overpriced, with prices converging down as the uncertainty about earnings is resolved, but the stocks' low liquidity suggests that transaction costs significantly reduce the potential arbitrage profits. Positive shocks to market-wide liquidity reduce arbitrage costs and accelerate the convergence of prices to fundamentals.
Download or read book The Limits of Arbitrage and Stock Mispricing written by Naji Mohammad AlShammasi and published by . This book was released on 2015 with total page 72 pages. Available in PDF, EPUB and Kindle. Book excerpt: The purpose of this paper is to investigate the effect of the "limits of arbitrage" on securities mispricing. Specifically, I investigate the effect of the availability of substitutes and financial constraints on stock mispricing. In addition, this study investigates the difference in the limits of arbitrage, in the sense that it will lead to lower mispricing for these stocks, relative to non-S&P 500 stocks. I also examine if the lower mispricing can be attributed to their lower limits of arbitrage. Modern finance theory and efficient market hypothesis suggest that security prices, at equilibrium, should reflect their fundamental value. If the market price deviates from the intrinsic value, then a risk-free profit opportunity has emerged and arbitrageurs will eliminate mispricing and equilibrium is restored. This arbitrage process is characterized by large number of arbitrageurs which have infinite access to capital. However, a better description of reality is that there are few numbers of arbitrageurs to the extent that they are highly specialized; and they have limited access to capital. Under these condition arbitrage is no more a risk-free activity and can be limited by several factors such as arbitrage risk and transaction costs. Other factors that are discussed in the literature are availability of substitutes and financial constraints. The former arises as a result of the specialization of arbitrageurs in the market in which they operate, while the latter arises as a result of the separation between arbitrageurs and capital. In this dissertation, I develop a measure of the availability of substitutes that is based on the propensity scores obtained from propensity score matching technique. In addition, I use the absolute value of skewness of returns as a proxy of financial constraints. Previous studies used the limits of arbitrage framework to explain pricing puzzles such as the closed-end fund discounts. However, closed-end fund discounts are highly affected by uncertainty of managerial ability and agency problems. This study overcomes this problem by studying the effect of limits of arbitrage on publicly traded securities. The results show that there is a significant relationship between proxies of limits of arbitrage and firm specific mispricing. More importantly, empirical results indicate that stocks that have no close substitutes have higher mispricing. In addition, stocks that have high skewness show higher mispricing. Subsequent studies show that the S&P 500 stocks have different levels of liquidity, analysts' coverage and volatility. These characteristics affect the ability of arbitrageurs to eliminate mispricing. Preliminary univariate tests show that S&P 500 stocks have, on average, lower mispricing and limits of arbitrage relative to non-S&P 500 stocks. In addition, the multivariate test shows that S&P 500 members have, on average, lower mispricing relative to non-S&P 500 stocks.
Download or read book Trading Volume Price Autocorrelation and Volatility Under Proportional Transaction Costs written by Hua Cheng and published by . This book was released on 2006 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a dynamic model in which traders have differential information about the true value of the risky asset and trade the risky asset with proportional transaction costs. We show that without additional assumption, trading volume can not totally remove the noise in the pricing equation. However, because trading volume increases in the absolute value of noisy per capita supply change, it provides useful information on the asset fundamental value which cannot be inferred from the equilibrium price.We further investigate the relation between trading volume, price autocorrelation, return volatility and proportional transaction costs. Firstly, trading volume decreases in proportional transaction costs and the influence of proportional transaction costs decreases at the margin. Secondly, price autocorrelation can be generated by proportional transaction costs: under no transaction costs, the equilibrium prices at date 1 and 2 are not correlated; however under proportional transaction costs, they are correlated - the higher (lower) the equilibrium price at date 1, the lower (higher) the equilibrium price at date 2. Thirdly, we show that return volatility may be increasing in proportional transaction costs, which is contrary to Stiglitz 1989, Summers amp; Summers 1989's reasoning but is consistent with Umlauf 1993 and Jones amp; Seguin 1997's empirical results.
Download or read book Implicit Transaction Costs and the Fundamental Theorems of Asset Pricing written by Erindi Allaj and published by . This book was released on 2017 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies arbitrage pricing theory in financial markets with implicit transaction costs. We extend the existing theory to include the more realistic possibility that the price at which the investors trade is dependent on the traded volume. The investors in the market always buy at the ask and sell at the bid price. Implicit transaction costs are composed of two terms, one is able to capture the bid-ask spread, and the second the price impact. Moreover, a new definition of a self-financing portfolio is obtained. The self-financing condition suggests that continuous trading is possible, but is restricted to predictable trading strategies having càdlàg (right-continuous with left limits) and càdlàg (left-continuous with right limits) paths of bounded quadratic variation and of finitely many jumps. That is, càdlàg and càdlàg predictable trading strategies of infinite variation, with finitely many jumps and of finite quadratic variation are allowed in our setting. Restricting ourselves to càdlàg predictable trading strategies, we show that the existence of an equivalent probability measure is equivalent to the absence of arbitrage opportunities, so that the first fundamental theorem of asset pricing (FFTAP) holds. It is also shown that the use of continuous and bounded variation trading strategies can improve the efficiency of hedging in a market with implicit transaction costs. To better understand how to apply the theory proposed we provide an example of an implicit transaction cost economy that is linear and non-linear in the order size.
