Large Financial Markets and Asymptotic Arbitrage with Small Transaction Costs

arXiv1211.0443MaRDI QIDQ6236871FDOQ6236871

Authors: Irene Klein, Emmanuel Lépinette, Lavinia Ostafe 

Publication date: 2 November 2012

Abstract: We give characterizations of asymptotic arbitrage of the first and second kind and of strong asymptotic arbitrage for large financial markets with small proportional transaction costs $l{a}_n$ on market $n$ in terms of contiguity properties of sequences of equivalent probability measures induced by $l{a}_n$--consistent price systems. These results are analogous to the frictionless case. Our setting is simple, each market $n$ contains two assets with continuous price processes. The proofs use quantitative versions of the Halmos--Savage Theorem and a monotone convergence result of nonnegative local martingales. Moreover, we present an example admitting a strong asymptotic arbitrage without transaction costs; but with transaction costs $l{a}_n>0$ on market $n$ ($l{a}_{n}o0$ not too fast) there does not exist any form of asymptotic arbitrage.

Mathematics Subject Classification ID

Martingales with continuous parameter (60G44) Microeconomic theory (price theory and economic markets) (91B24) Stochastic models in economics (91B70)

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