On the dual of the solvency cone
The authors consider a problem of rearranging a portfolio of assets in the presence of transaction costs. They consider \(d\) classes of assets, assuming that a unit of asset \(j\) has price \(\pi_{ij}\) in terms of units of asset \(i\). It is also assumed that some of these assets should be sold and some should be bought. The problem is how to arrange these transactions optimally (i.e., with minimal possible losses), if they should be self-financing. The authors show that all feasible transactions can be represented by a polyhedral convex cone \(K_d\), and that the optimal transactions are on the boundary of the cone \(K_d\). The optimal transactions can be represented by extreme directions of the dual cone \(K_d^+\). In turn, these can be represented by spanning trees of bipartite graphs. The authors consider bipartite graphs \(G(P,N)\), where \(P\) are the indexes of the assets to be sold and \(N\) are the indexes of the assets that should be bought (all edges in the graph are from \(P\) to \(N\)). They prove that the only extreme directions in \(K_d^+\) are vectors \(y\in\mathbb R^d\) that fulfill \(\pi_{ij}y_i\geq y_j\) (for \(i\in P\), \(j\in N\)) with equality if \(ij\) is an edge in a spanning tree of \(G(P,N)\). Such vectors \(y\) are defined as \textit{feasible tree solutions}. In the main result the authors provide the representation in terms of \(P\)-configurations, i.e., the vectors of natural numbers, where subsequent numbers are degrees of the vertices in \(P\). The main theorem states that for every such \(P\)-configuration there exists a feasible tree solution. The proof is by induction and it is constructive. Thus, it provides a recursive algorithm to calculate such a solution. At the end, the authors consider the special case in which relative prices are defined as \(\pi_{ij}=a_j/b_i\), what simplifies the problem.
- Duality and its applications to optimality conditions with nonsolid cones
- scientific article; zbMATH DE number 5039810
- Convex duality and financial mathematics
- Duality in a Problem of Static Partial Hedging under Convex Constraints
- Risk and Utility in the Duality Framework of Convex Analysis
- Conjugate duality in problems of constrained utility maximization
- scientific article; zbMATH DE number 1263727
- Characterizations for solidness of dual cones with applications
- On duality theory of convex semi-infinite programming
- On the duality operator of a convex cone
- Digraphs. Theory, algorithms and applications
- Explicit solution to the multivariate super-replication problem under transaction costs.
- Hedging and liquidation under transaction costs in currency markets
- scientific article; zbMATH DE number 705150 (Why is no real title available?)
- Markets with transaction costs. Mathematical theory.
- New Methods in Mathematical Programming—Optimal Flow Through Networks with Gains
- Permutohedra, Associahedra, and Beyond
- State Constraints in Convex Control Problems of Bolza
- The Fundamental Theorem of Asset Pricing under Proportional Transaction Costs in Finite Discrete Time
This page was built for publication: On the dual of the solvency cone
Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q2345609)
