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No-Arbitrage Asset-Pricing in Frictional Multi-period Securities Markets

Zhongfei Li

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Abstract

Asset Pricing Theory is the core in modern finance. The two fundamental approaches of asset pricing are the no-arbitrage and the equilibrium. By no-arbitrage approach this paper investigates asset-pricing theory in frictional multi-period securities markets with bid-ask spreads, proportional transaction costs, and fixed transaction costs. Two fundamental asset-pricing theorems are respectively established for markets that exclude arbitrage and for markets that exclude strong arbitrage.

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What this paper is about

Asset Pricing Theory is the core in modern finance. The two fundamental approaches of asset pricing are the no-arbitrage and the equilibrium. By no-arbitrage approach this paper investigates asset-pricing theory in frictional multi-period securities markets with bid-ask spreads, proportional transaction costs, and fixed transaction costs. Two fundamental asset-pricing theorems are respectively established for markets that exclude arbitrage and for markets that exclude strong arbitrage.

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Available abstract

Asset Pricing Theory is the core in modern finance. The two fundamental approaches of asset pricing are the no-arbitrage and the equilibrium. By no-arbitrage approach this paper investigates asset-pricing theory in frictional multi-period securities markets with bid-ask spreads, proportional transaction costs, and fixed transaction costs. Two fundamental asset-pricing theorems are respectively established for markets that exclude arbitrage and for markets that exclude strong arbitrage.

Key concepts: Arbitrage pricing theory, Arbitrage, Investment theory, Variable pricing, Consumption-based capital asset pricing model, Risk arbitrage, Fixed income arbitrage, Capital asset pricing model

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