Valuation of risky assets in arbitrage-free economies with transactions costs

Mark B. Garman, James Arvid Ohlson

Research output: Journal article publicationJournal articleAcademic researchpeer-review

40 Citations (Scopus)

Abstract

This paper analyzes the equilibrium valuation of risky assets in the case where transactions costs are present. The methodology involves applying 'theorems of the alternative' (Farkas' Lemma) as a consequence of arbitrage-free markets. Under relevant assumptions, it is found that the price of an asset having transactions costs is the corresponding price that would obtain in a perfect market, plus a 'fudge factor'. This latter factor is provided explicit bounds.
Original languageEnglish
Pages (from-to)271-280
Number of pages10
JournalJournal of Financial Economics
Volume9
Issue number3
DOIs
Publication statusPublished - 1 Jan 1981
Externally publishedYes

ASJC Scopus subject areas

  • Accounting
  • Strategy and Management
  • Economics and Econometrics
  • Finance

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