The Harrison-Pliska arbitrage pricing theorem under transaction costs (Q5939294)

This paper proposes another approach, a geometric formalism involving polyhedral and dual cones, to derive an arbitrage pricing theorem with a finite-time setting with a finite probability space, extending thereby the seminal result of \textit{J. M. Harrison} and \textit{S. R. Pliska} [Stochastic Processes Appl. 11, 215-260 (1981; Zbl 0482.60097)], to cover markets with transaction costs. It proves a rather surprising result that in multi-period models with proportional transaction costs the concept of equivalent martingale measure has no importance. The authors describe the set of all initial endowments such that an investor starting with such an endowment and employing a certain self-financing portfolio is able to ``super-replicate'' a given contingent claim. This result is proved without ``unnecessary'' assumptions.