Frictionless market
Encyclopedia
A Frictionless market is a financial market
without transaction costs. Friction is a type of market incompleteness. Every complete market
is frictionless, but the converse does not hold. In a frictionless market the solvency cone
is the halfspace normal to the unique price vector. The Black-Scholes model assumes a frictionless market.
Financial market
In economics, a financial market is a mechanism that allows people and entities to buy and sell financial securities , commodities , and other fungible items of value at low transaction costs and at prices that reflect supply and demand.Both general markets and...
without transaction costs. Friction is a type of market incompleteness. Every complete market
Complete market
In economics, a complete market is one in which the complete set of possible gambles on future states-of-the-world can be constructed with existing assets without friction. Every agent is able to exchange every good, directly or indirectly, with every other agent without transaction costs...
is frictionless, but the converse does not hold. In a frictionless market the solvency cone
Solvency cone
The solvency cone is a concept used in financial mathematics which models the possible trades in the financial market. This is of particular interest to markets with transaction costs...
is the halfspace normal to the unique price vector. The Black-Scholes model assumes a frictionless market.