We propose a new approach to the pricing and hedging of contingent claims under transaction costs in a general incomplete market in discrete time. Under the assumptions of a bounded mean-variance tradeoff, substantial risk and a nondegeneracy condition on the conditional variances of asset returns, we prove the existence of a locally risk-minimizing strategy inclusive of transaction costs for e...

transaction cost economics (williamson, 1985) is a theory of the firm in new institutional economics that has been applied for analysing economic transaction; especially, make-or-buy decisions or vertical mergers in firms. the contribution of this paper is applying this theory for a political issue that is party formation. transaction cost economics links the party formation to the transaction ...

Previous research suggests that a decline in transactions costs leads to improved economic efficiency. In this paper, we show that such a decline will introduce increasingly uninformed consumers into established markets. Using a model of financial market inefficiency, we show that this increase in uninformed individuals can increase market risk (volatility), can decrease efficiency, and may red...

We investigate how and when to diversify capital over assets, i.e., the portfolio selection problem, from a signal processing perspective. To this end, we first construct portfolios that achieve the optimal expected growth in i.i.d. discrete-time two-asset markets under proportional transaction costs. We then extend our analysis to cover markets having more than two stocks. The market is modele...