Necessary and Sufficient Conditions for Weak No-Arbitrage in Securities Markets with Frictions |
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| Authors: | Xiaotie Deng Zhong Fei Li Shouyang Wang Hailiang Yang |
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| Institution: | (1) Department of Computer Science, City University of Hong Kong, Kowloon, Hong Kong;(2) Department of Finance, Lingnan (University) College, Sun Yat-Sen University, Guangzhou, 510275, People’s Republic of China;(3) Institute of Systems Sciences, Academy of Mathematics and System Sciences, Chinese Academy of Sciences, Beijing, 100080, People’s Republic of China;(4) Department of Statistics and Actuarial Science, The University of Hong Kong, Pokfulam Road, Hong Kong |
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| Abstract: | In this paper we consider a financial market model with frictions which include transaction costs, bid-ask spread and taxes.
By using optimization, linear and nonlinear programming and convex programming techniques, several necessary and sufficient
conditions are derived for the weak no-arbitrage. Some results on state prices are also provided. The results of this paper
can provide at least some theoretical insight to the problem.
This research was supported in part by a grant of the National Excellent Ph.D. Thesis Project of China (No. 200267), a grant
of the National Natural Science Foundation of China (No. 10171115), a “Tenth Five-Year Plan” project of Ministry of Education
of China (No. 01JA630009), a grant of the Natural Science Foundation of Guangdong Province (No. 011193), two grants from the
Research Grants Council of Hong Kong (CityU 1081/02E, HKU 7139/01H), and a research grant of the University of Hong Kong. |
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| Keywords: | weak no-arbitrage transaction costs bid-ask spread taxes nonlinear programming |
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