Duality theory for portfolio optimisation under transaction costs

DOI10.1214/15-AAP1136zbMATH Open1415.91258arXiv1408.5989MaRDI QIDQ303976FDOQ303976

Authors: Christoph Czichowsky, Walter Schachermayer 

Publication date: 23 August 2016

Published in: The Annals of Applied Probability (Search for Journal in Brave)

Abstract: For portfolio optimisation under proportional transaction costs, we provide a duality theory for general cadlag price processes. In this setting, we prove the existence of a dual optimiser as well as a shadow price process in a generalised sense. This shadow price is defined via a "sandwiched" process consisting of a predictable and an optional strong supermartingale and pertains to all strategies which remain solvent under transaction costs. We provide examples showing that in the present general setting the shadow price process has to be of this generalised form.

Full work available at URL: https://arxiv.org/abs/1408.5989

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zbMATH Keywords

convex dualityoptional strong supermartingalespredictable strong supermartingalesproportional transaction costslogarithmic utilityshadow pricessupermartingale deflatorsutility maximisation

Mathematics Subject Classification ID

Optimality conditions and duality in mathematical programming (90C46) Portfolio theory (91G10) Generalizations of martingales (60G48)

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Cited In (27)

• Utility maximization problem with transaction costs: optimal dual processes and stability
• Short communication: A note on utility maximization with proportional transaction costs and stability of optimal portfolios
• Strong supermartingales and limits of nonnegative martingales
• Discrete‐time risk sensitive portfolio optimization with proportional transaction costs
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• Asymptotic theory of transaction costs
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