Price functionals with bid–ask spreads : an axiomatic approach.

In Jouini and Kallal (1995a), the authors characterized the absence of arbitrage opportunities for contingent claims with cash delivery in the presence of bid-ask spreads. Other authors obtained similar results for a more general de nition of the contingent claims but assuming some speci c price processes and transaction costs rather than bid-ask spreads in general (see for instance, Cvitanic and Karatzas, 1996). The main di erence consists in the fact that the bid-ask ratio is constant in this last reference. This assumption does not permit to encompass situations where the prices are determined by the buying and selling limit orders or by a (resp. competitive) specialist (resp. market- makers). We derive in this paper some implications from the no-arbitrage assumption on the price functionals that generalizes all the previous results in a very general setting. Indeed, under some minimal assumptions on the price functional, we prove that the prices of the contingent claims are necessarily in some minimal interval. This result opens the waytomany empirical analyses.