DEFINITION of 'Solvency Cone'
A model that considers the impact of transaction costs while trading financial assets. The solvency cone at a certain time ("t") is the set of those positions that can be exchanged into a nonnegative portfolio at time t after taking bidask prices into consideration. The spread between bid and ask prices is a very significant component of transaction costs.
INVESTOPEDIA EXPLAINS 'Solvency Cone'
Classical financial models generally do not take transaction costs into account, which hampers their application in the real world, since these costs are a significant factor in trading decisions. The solvency cone eliminates this drawback by taking transaction costs into account in its model. The concept finds a great deal of application in markets such as foreign exchange. While bidask spreads can be quite narrow in the foreign exchange market, the large position sizes in the interbank and institutional segments of the forex market can result in significant transaction costs.

Ask
The price a seller is willing to accept for a security, also ... 
Model Risk
A type of risk that occurs when a financial model used to measure ... 
Black Box Model
A computer program into which users enter information and the ... 
Transaction Costs
Expenses incurred when buying or selling securities. Transaction ... 
BidAsk Spread
The amount by which the ask price exceeds the bid. This is essentially ... 
Bid
1. An offer made by an investor, a trader or a dealer to buy ...

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