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arXiv · 1205.6254

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

Tomasz R. Bielecki·Igor Cialenco·Rodrigo Rodriguez
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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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Tomasz R. Bielecki, Igor Cialenco, Rodrigo Rodriguez. 2013-06-12. No-Arbitrage Pricing for Dividend-Paying Securities in Discrete-Time Markets with Transaction Costs. https://arxiv.org/abs/1205.6254

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