This paper studies the market viability with proportional transaction costs in the sense that the utility maximization problems defined on terminal liquidation values admit optimal solutions . Instead of requiring the existence of strictly consistent price systems (SCPS) as in the literature, we show that strictly consistent local martingale systems (SCLMS) can successfully serve as the dual elements such that the market viability can be verified. We introduce two weaker notions of no arbitrage conditions on market models named no unbounded profit with bounded risk (NUPBR) and no local arbitrage with bounded portfolios (NLABP). In particular, we reveal that the NUPBR and NLABP conditions in the robust sense for the smaller bid-ask spreads is the equivalent characterization of the existence of SCLMS for general market models. As a consequence, the relationship between NUPBR and NLABP conditions in the robust sense and the market viability is examined. Moreover, different types of arbitrage opportunities with transaction costs are discussed and the comparison between our setting and the frictionless market models is also presented .
This paper studies the market viability with proportional transaction costs . Instead of requiring the existence of strictly consistent price systems (SCPS) as in the literature, we show that strictly consistent local martingale systems (SCLMS) can successfully serve as the dual elements such that the market viability can be verified. We introduce two weaker notions of no arbitrage conditions on market models named no unbounded profit with bounded risk (NUPBR) and no local arbitrage with bounded portfolios (NLABP). In particular, we show that the NUPBR and NLABP conditions in the robust sense for the smaller bid-ask spreads is the equivalent characterization of the existence of SCLMS for general market models. We also discuss the implications for the utility maximization problem .
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in the sense that the utility maximization problems defined on terminal liquidation values admit optimal solutions
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reveal
show
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As a consequence, the relationship between NUPBR and NLABP conditions in the robust sense and the market viability is examined. Moreover, different types of arbitrage opportunities with transaction costs are discussed and the comparison between our setting and the frictionless market models is also presented
We also discuss the implications for the utility maximization problem