![Effective securities in arbitrage-free markets with bid-ask spreads at liquidation: a linear programming characterization [An article from: Journal of Economic Dynamics and Control]](http://ecx.images-amazon.com/images/I/51S8Q075X2L.jpg)
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This digital document is a journal article from Journal of Economic Dynamics and Control, published by Elsevier in . The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.
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We consider a securities market with bid-ask spreads at any period, including liquidation. Although the minimum-cost super-replication problem is non-linear, we introduce an auxiliary problem that allows us to characterize no-arbitrage via linear programming techniques. We introduce the notion of effective new security and show that effectiveness restricts the no-arbitrage bid and ask prices of a new security to the interval defined by the minimum-cost problem. We discuss in detail the cases in which the boundaries of this interval can be reached without violating no-arbitrage.
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