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Encyclopedia of Finance pp 596–603Cite as

Arbitrage and market frictions

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Abstract

Arbitrage is central to finance. The classical implications of the absence of arbitrage are derived in economies with no market frictions. A recent literature addresses the implications of no-arbitrage in settings with various market frictions. Examples of the latter include restrictions on short sales, different types of impediments to borrowing, and transactions costs. Much of this literature employs assumptions of continuous time and a continuous state space. This selected review of the literature on arbitrage and market frictions adopts a framework with discrete states. It illustrates and discusses a sample of the principal results previously obtained in continuous frameworks, clarifying the underlying intuition and enabling their accessibility to a wider audience.

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Author information

Authors and Affiliations

  1. Rutgers University, New Brunswick/Piscataway, USA

    Shashidhar Murthy

Authors
  1. Shashidhar Murthy
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Editor information

Editors and Affiliations

  1. Rutgers University, New Brunswick/Piscataway, USA

    Cheng-Few Lee

  2. San Francisco State University, San Francisco, USA

    Alice C. Lee

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© 2006 Springer Science+Business Media, Inc.

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Murthy, S. (2006). Arbitrage and market frictions. In: Lee, CF., Lee, A.C. (eds) Encyclopedia of Finance. Springer, Boston, MA. https://doi.org/10.1007/978-0-387-26336-6_57

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  • DOI: https://doi.org/10.1007/978-0-387-26336-6_57

  • Publisher Name: Springer, Boston, MA

  • Print ISBN: 978-0-387-26284-0

  • Online ISBN: 978-0-387-26336-6

  • eBook Packages: Business and Economics

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