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Transaction Costs in Financial Models

Author

Listed:
  • Bruno Bouchard

    (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique, LFA - Laboratoire de Finance Assurance - Centre de Recherche en Économie et STatistique (CREST))

  • Elyès Jouini

    (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

Abstract
Standard models for fi nancial markets are based on the simplifying assumption that trading orders can be given and executed in continuous time with no friction. This assumption is clearly a strong idealization of the reality. In particular, securities should not be described by a single price but by a bid and ask curve. As a first approximation, one may assume that the bid and ask prices do not depend on the traded quantities which leads to models with proportional transaction costs. These models have attracted a lot of attention these lasts years, mostly because their linear structure allows to develop a nice duality theory as in frictionless models.

Suggested Citation

  • Bruno Bouchard & Elyès Jouini, 2010. "Transaction Costs in Financial Models," Post-Print halshs-00703138, HAL.
    • Handle: RePEc:hal:journl:halshs-00703138
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00703138
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    File URL: https://shs.hal.science/halshs-00703138/document
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    References listed on IDEAS

    as
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    Cited by:

    1. Paolo Guasoni & Mikl'os R'asonyi, 2015. "Hedging, arbitrage and optimality with superlinear frictions," Papers 1506.05895, arXiv.org.

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