Shadow prices for continuous processes

Czichowsky, Christoph ORCID: 0000-0002-3513-6843, Schachermayer, Walter and Yang, Junjian (2017) Shadow prices for continuous processes. Mathematical Finance, 27 (3). pp. 623-658. ISSN 0960-1627

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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 counterexample reveals that these hypotheses cannot be relaxed.

Item Type:	Article
Official URL:	http://onlinelibrary.wiley.com/journal/10.1111/%28...
Additional Information:	© 2015 Wiley
Divisions:	Mathematics
Subjects:	H Social Sciences > HG Finance Q Science > QA Mathematics
JEL classification:	C - Mathematical and Quantitative Methods > C6 - Mathematical Methods and Programming > C61 - Optimization Techniques; Programming Models; Dynamic Analysis G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions
Date Deposited:	01 Sep 2015 14:38
Last Modified:	12 Dec 2024 01:20
Projects:	PBEZP2 137313, FA506041, FA506041, FA506041, P25815
Funders:	Swiss National Science Foundation (SNF), European Research Council, Austrian Science Fund (FWF)
URI:	http://eprints.lse.ac.uk/id/eprint/63370

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