Shadow prices for continuous processes

DOI10.1111/MAFI.12103zbMATH Open1396.91684arXiv1408.6065OpenAlexW2108673778MaRDI QIDQ5283399FDOQ5283399

Authors: Christoph Czichowsky, Walter Schachermayer, Junjian Yang 

Publication date: 21 July 2017

Published in: Mathematical Finance (Search for Journal in Brave)

Abstract: In a financial market with a continuous price process and proportional transaction costs we investigate the problem of utility maximization of terminal wealth. We give sufficient conditions for the existence of a shadow price process, i.e.~a least favorable frictionless market leading to the same optimal strategy and utility as in the original market under transaction costs. The crucial ingredients are the continuity of the price process and the hypothesis of "no unbounded profit with bounded risk". A counter-example reveals that these hypotheses cannot be relaxed.

Full work available at URL: https://arxiv.org/abs/1408.6065

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zbMATH Keywords

convex dualityproportional transaction costsshadow pricescontinuous price processesportfolio maximization

Mathematics Subject Classification ID

Portfolio theory (91G10) Martingales with continuous parameter (60G44) Applications of stochastic analysis (to PDEs, etc.) (60H30)

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Cited In (19)

• OPTIMAL INVESTMENT AND CONTINGENT CLAIM VALUATION WITH EXPONENTIAL DISUTILITY UNDER PROPORTIONAL TRANSACTION COSTS
• Utility maximization problem with transaction costs: optimal dual processes and stability
• The shadow price of information in continuous time decision problems
• Valuation and martingale properties of shadow prices: an exposition
• Duality theory for portfolio optimisation under transaction costs
• Sticky Continuous Processes have Consistent Price Systems
• Robust utility maximisation in markets with transaction costs
• How Rough Path Lifts Affect Expected Return and Volatility: A Rough Model under Transaction Cost
• Existence of shadow prices in finite probability spaces
• On the existence of shadow prices for optimal investment with random endowment
• Short Communication: A Note on Utility Maximization with Proportional Transaction Costs and Stability of Optimal Portfolios
• Semimartingale price systems in models with transaction costs beyond efficient friction
• Log-optimal and rapid paths in von Neumann-Gale dynamical systems
• Shadow price approximation for the fractional Black Scholes model
• Optimal investment with random endowments and transaction costs: duality theory and shadow prices
• Finite-horizon optimal investment with transaction costs: construction of the optimal strategies
• TWO PROCESSES FOR TWO PRICES
• Merton's portfolio problem including market frictions: a closed-form formula supporting the shadow price approach
• Shadow prices, fractional Brownian motion, and portfolio optimisation under transaction costs

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