Existence of shadow prices in finite probability spaces
From MaRDI portal
Abstract: A shadow price is a process lying within the bid/ask prices of a market with proportional transaction costs, such that maximizing expected utility from consumption in the frictionless market with this price process leads to the same maximal utility as in the original market with transaction costs. For finite probability spaces, this note provides an elementary proof for the existence of such a shadow price.
This article is concerned with maximizing expected utility from consumption in a finite market model with proportional transaction costs. The authors show that in this market model a shadow price process \(\widetilde{S}\) exists provided \( E\left[\sum u_t(c_t)\right]> -\infty\) , where an optimal portfolio/consumption pair \(\biggl(\left(\phi^0,\phi\right),c \biggr)\) exists for the market with bid/ask prices of \(\underline{S}, \overline{S}\). Moreover, the authors give an analogue of the fundamental theorem of asset pricing.
Recommendations
Cites work
- A closed-form solution to the problem of super-replication under transaction costs
- Consistent price systems and face-lifting pricing under transaction costs
- Dual formulation of the utility maximization problem under transaction costs
- Hedging and liquidation under transaction costs in currency markets
- HEDGING AND PORTFOLIO OPTIMIZATION UNDER TRANSACTION COSTS: A MARTINGALE APPROACH12
- scientific article; zbMATH DE number 1724299 (Why is no real title available?)
- scientific article; zbMATH DE number 1266748 (Why is no real title available?)
- Local risk-minimization under transaction costs
- Markets with transaction costs. Mathematical theory.
- Martingales and arbitage in securities markets with transaction costs
- Multivariate utility maximization with proportional transaction costs
- On optimal portfolio trading strategies for an investor facing transactions costs in a continuous trading market
- On optimal terminal wealth under transaction costs
- On using shadow prices in portfolio optimization with transaction costs
- Portfolio Selection with Transaction Costs
- The Fundamental Theorem of Asset Pricing under Proportional Transaction Costs in Finite Discrete Time
- Variational Analysis
Cited in
(20)- The diagonalizability of quadratic functions and the arbitrariness of shadow prices
- Valuation and martingale properties of shadow prices: an exposition
- Shadow prices, fractional Brownian motion, and portfolio optimisation under transaction costs
- Optimal strategies for utility from terminal wealth with general bid and ask prices
- Utility maximization problem with transaction costs: optimal dual processes and stability
- Asymptotic arbitrage with small transaction costs
- Numeraire portfolios and utility-based price systems under proportional transaction costs
- Semimartingale price systems in models with transaction costs beyond efficient friction
- Utility maximization in a binomial model with transaction costs: a duality approach based on the shadow price process
- Utility maximization problem with random endowment and transaction costs: when wealth may become negative
- Duality theory for portfolio optimisation under transaction costs
- Log-optimal investment in the long run with proportional transaction costs when using shadow prices.
- On the existence of shadow prices
- On the game interpretation of a shadow price process in utility maximization problems under transaction costs
- On the existence of shadow prices for optimal investment with random endowment
- Shadow prices for continuous processes
- Optimal investment and contingent claim valuation with exponential disutility under proportional transaction costs
- Construction of a shadow price for discrete infinite horizon discounted functionals
- Discrete-time shadow price revisited
- Construction of discrete time shadow price
This page was built for publication: Existence of shadow prices in finite probability spaces
Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q532533)
