Asymptotic arbitrage with small transaction costs (Q2255014): Difference between revisions

The aim of the paper is to give conditions for existence and non-existence for the sequence of markets, where market \(n\) is subject to proportional transaction costs \(\lambda_n\in (0, 1)\), in the following setting: each market \(n\) is given by two assets, a risk-free one and risky one with strictly positive càdlàg paths. The main assumption for the considered situation is formulated as follows: \({\mathcal M}^n(\lambda)\not=0\) for all \(\lambda > 0\) and all \(n\in {\mathbb N}\). For each market \(n\), this condition is related to the absence of arbitrage with arbitrary small transaction costs \(\lambda>0\) on each market \(n\). Under this assumption, a criterion for the absence of asymptotic arbitrages of the first and second kind, as well as a strong asymptotic arbitrage, are found. Two examples of models are discussed on the base of these criterion, namely, a market with strong asymptotic arbitrage which disappears when transaction costs are introduced, and the Black-Scholes model.