English

Utility maximization with proportional transaction costs under model uncertainty

Mathematical Finance 2019-08-02 v4 Optimization and Control

Abstract

We consider a discrete time financial market with proportional transaction costs under model uncertainty, and study a num\'eraire-based semi-static utility maximization problem with an exponential utility preference. The randomization techniques recently developed in \cite{BDT17} allow us to transform the original problem into a frictionless counterpart on an enlarged space. By suggesting a different dynamic programming argument than in \cite{bartl2016exponential}, we are able to prove the existence of the optimal strategy and the convex duality theorem in our context with transaction costs. In the frictionless framework, this alternative dynamic programming argument also allows us to generalize the main results in \cite{bartl2016exponential} to a weaker market condition. Moreover, as an application of the duality representation, some basic features of utility indifference prices are investigated in our robust setting with transaction costs.

Keywords

Cite

@article{arxiv.1805.06498,
  title  = {Utility maximization with proportional transaction costs under model uncertainty},
  author = {Shuoqing Deng and Xiaolu Tan and Xiang Yu},
  journal= {arXiv preprint arXiv:1805.06498},
  year   = {2019}
}

Comments

Final version, to appear in Mathematics of Operations Research

R2 v1 2026-06-23T01:58:01.172Z