economic theory Economics () is a behavioral science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics anal ...

a frictionless market is a

financial market A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, raw materials and precious metals, which are known in the financial marke ...

without

transaction costs In economics, a transaction cost is a cost incurred when making an economic trade when participating in a market. The idea that transactions form the basis of economic thinking was introduced by the institutional economist John R. Commons in 1 ...

. Friction is a type of market incompleteness. Every

complete market In economics, a complete market (aka Arrow-Debreu market or complete system of markets) is a market with two conditions: # Negligible transaction costs and therefore also perfect information, # Every asset in every possible state of the world h ...

is frictionless, but the converse does not hold. In a frictionless market the

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. Specifically, it is the convex cone of portfolios that can be ...

is the

halfspace Half-space may refer to: * Half-space (geometry), either of the two parts into which a plane divides Euclidean space ** (Poincaré) Half-space model, a model of hyperbolic geometry using a Euclidean half-space ** Siegel upper half-space In mathema ...

normal to the unique price vector. The

Black–Scholes model The Black–Scholes or Black–Scholes–Merton model is a mathematical model for the dynamics of a financial market containing Derivative (finance), derivative investment instruments. From the parabolic partial differential equation in the model, ...

assumes a frictionless market.

References

Financial markets Mathematical finance {{finance-stub