On the dual of the solvency cone

DOI10.1016/J.DAM.2015.01.030MaRDI QIDQ2345609zbMATH OpenOpenAlexFDO

Authors Andreas Löhne, Birgit Rudloff

Publication date 22 May 2015

Published in Discrete Applied Mathematics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1402.2221

zbMATH Keywords

bipartite graphtransaction costsspanning treedual coneextreme directionflow in graph

Mathematics Subject Classification ID

Applications of graph theory (05C90) Polyhedral combinatorics, branch-and-bound, branch-and-cut (90C57) Portfolio theory (91G10) Flows in graphs (05C21) Inequalities and extremum problems involving convexity in convex geometry (52A40)

Abstract: A solvency cone is a polyhedral convex cone which is used in Mathematical Finance to model proportional transaction costs. It consists of those portfolios which can be traded into nonnegative positions. In this note, we provide a characterization of its dual cone in terms of extreme directions and discuss some consequences, among them: (i) an algorithm to construct extreme directions of the dual cone when a corresponding "contribution scheme" is given; (ii) estimates for the number of extreme directions; (iii) an explicit representation of the dual cone for special cases. The validation of the algorithm is based on the following easy-to-state but difficult-to-solve result on bipartite graphs: Running over all spanning trees of a bipartite graph, the number of left degree sequences equals the number of right degree sequences.

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Cites work

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Cited in

(1)

• Equivalence between polyhedral projection, multiple objective linear programming and vector linear programming

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