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No-arbitrage criteria for financial markets with efficient friction

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Abstract.

We consider a multi-asset discrete-time model of a financial market with proportional transaction costs and efficient friction and prove necessary and sufficient conditions for the absence of arbitrage. Our main result is an extension of the Dalang–Morton–Willinger theorem. As an application, we establish a hedging theorem giving a description of the set of initial endowments which allows to super-replicate a given contingent claim.

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Manuscript received: February 2001; final version received: September 2001

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Kabanov, Y., Rásonyi, M. & Stricker, C. No-arbitrage criteria for financial markets with efficient friction. Finance Stochast 6, 371–382 (2002). https://doi.org/10.1007/s007800100062

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  • DOI: https://doi.org/10.1007/s007800100062

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