Market Imperfections , Equilibrium and Arbitrage
Jouini, Elyès (1997), Market Imperfections , Equilibrium and Arbitrage, in Runggaldier, Wolfgang, Financial Mathematics, Springer : Berlin Heidelberg, p. 247-307
Type
Chapitre d'ouvrageDate
1997Book title
Financial MathematicsBook author
Runggaldier, WolfgangPublisher
Springer
Published in
Berlin Heidelberg
ISBN
3540626425
Pages
247-307
Metadata
Show full item recordAuthor(s)
Jouini, ElyèsAbstract (EN)
The theory of asset pricing, which takes its roots in the Arrow-Debreu model, the Black and Scholes formula, has been famalized in a framework by Harrison and Kreps (1979), harrison and Pliska (1979) and Kreps (1981). In these models, securities markets are assumed to be frictionless. The main result is that a price process is arbitrage free (or, equivalently, compatible with some equilibrium) if and only if it is, when appropriately renormalized, a martingale for some equivalent probability measure. The theory of pricing by arbitrage floows from there. Contingent claims can be priced by taking their expected value with respect to an equivalent martingale measure. If this value is unique, the claim is said to be priced by arbitrage. The new probabilities can be interpreted as state prices or as the intertemporal marginal ratyes of substitution of an agent maximizing his expected utility. In this work, we will propose a general model that takes frictions into account.Subjects / Keywords
Market imperfections; equilibrium; arbitrageRelated items
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