Optimal investment with random endowments and transaction costs: duality theory and shadow prices
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Publication:2422170
Abstract: This paper studies the utility maximization on the terminal wealth with random endowments and proportional transaction costs. To deal with unbounded random payoffs from some illiquid claims, we propose to work with the acceptable portfolios defined via the consistent price system (CPS) such that the liquidation value processes stay above some stochastic thresholds. In the market consisting of one riskless bond and one risky asset, we obtain a type of super-hedging result. Based on this characterization of the primal space, the existence and uniqueness of the optimal solution for the utility maximization problem are established using the duality approach. As an important application of the duality theorem, we provide some sufficient conditions for the existence of a shadow price process with random endowments in a generalized form as well as in the usual sense using acceptable portfolios.
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Cited in
(5)- Convex duality in optimal investment and contingent claim valuation in illiquid markets
- Continuous-time duality for superreplication with transient price impact
- Utility maximization problem with random endowment and transaction costs: when wealth may become negative
- Utility maximization with proportional transaction costs under model uncertainty
- On the existence of shadow prices for optimal investment with random endowment
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