The Annals of Applied Probability
- Ann. Appl. Probab.
- Volume 18, Number 2 (2008), 491-520.
Consistent price systems and face-lifting pricing under transaction costs
In markets with transaction costs, consistent price systems play the same role as martingale measures in frictionless markets. We prove that if a continuous price process has conditional full support, then it admits consistent price systems for arbitrarily small transaction costs. This result applies to a large class of Markovian and non-Markovian models, including geometric fractional Brownian motion.
Using the constructed price systems, we show, under very general assumptions, the following “face-lifting” result: the asymptotic superreplication price of a European contingent claim g(ST) equals ĝ(S0), where ĝ is the concave envelope of g and St is the price of the asset at time t. This theorem generalizes similar results obtained for diffusion processes to processes with conditional full support.
Ann. Appl. Probab. Volume 18, Number 2 (2008), 491-520.
First available in Project Euclid: 20 March 2008
Permanent link to this document
Digital Object Identifier
Mathematical Reviews number (MathSciNet)
Zentralblatt MATH identifier
Guasoni, Paolo; Rásonyi, Miklós; Schachermayer, Walter. Consistent price systems and face-lifting pricing under transaction costs. Ann. Appl. Probab. 18 (2008), no. 2, 491--520. doi:10.1214/07-AAP461. http://projecteuclid.org/euclid.aoap/1206018195.