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Shadow prices for continuous processes

Authors :
Czichowsky, Christoph
Schachermayer, Walter
Yang, Junjian
Publication Year :
2014

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.

Details

Database :
arXiv
Publication Type :
Report
Accession number :
edsarx.1408.6065
Document Type :
Working Paper