This paper studies arbitrage pricing theory in financial markets with transaction costs, extending the existing theory to include the more realistic possibility that the price at which the investors trade is dependent on the traded volume. The investors in the market always buy at the ask and sell at the bid price. Transaction costs are composed of two terms; one is able to capture the implicit transaction costs, and the second the price impact. Moreover, a new definition of a self-financing portfolio is obtained. The self-financing condition suggests that continuous trading is possible, but is restricted to predictable trading strategies having right-continuous with left limits left-continuous with right limits paths of bounded quadratic variation and of finitely many jumps […]