Shadow prices for continuous processes

DOI10.1111/MAFI.12103MaRDI QIDQ5283399zbMATHOpenAlexFDO

Authors Christoph Czichowsky, Walter Schachermayer, Junjian Yang

Publication date 21 July 2017

Published in Mathematical Finance (Search for Journal in Brave)

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

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)

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.

Recommendations

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Cited in

(25)

• Log-optimal and rapid paths in von Neumann-Gale dynamical systems
• On the existence of shadow prices
• The shadow price of information in continuous time decision problems
• Valuation and martingale properties of shadow prices: an exposition
• Finite-horizon optimal investment with transaction costs: construction of the optimal strategies
• Construction of discrete time shadow price
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• Existence of shadow prices in finite probability spaces
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• Sticky Continuous Processes have Consistent Price Systems
• How Rough Path Lifts Affect Expected Return and Volatility: A Rough Model under Transaction Cost

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