Related papers: Almost Perfect Shadow Prices
In frictionless markets, utility maximization problems are typically solved either by stochastic control or by martingale methods. Beginning with the seminal paper of Davis and Norman [Math. Oper. Res. 15 (1990) 676--713], stochastic…
This paper studies arbitrage pricing theory in financial markets with implicit transaction costs. We extend the existing theory to include the more realistic possibility that the price at which the investors trade is dependent on the traded…
Online auctions play a central role in online advertising, and are one of the main reasons for the industry's scalability and growth. With great changes in how auctions are being organized, such as changing the second- to first-price…
We revisit optimal execution of an active portfolio in the presence of slippage (aka linear, proportional, or absolute-value) costs. Market efficiency implies a close balance between active alphas and trading costs, so even small changes to…
We propose a general approximation method for determining optimal trading strategies in markets with proportional transaction costs, with a polynomial approximation of the residual value function. The method is exemplified by several…
This paper studies convex duality in optimal investment and contingent claim valuation in markets where traded assets may be subject to nonlinear trading costs and portfolio constraints. Under fairly general conditions, the dual expressions…
We consider the maximization of the long-term growth rate in the Black-Scholes model under proportional transaction costs as in Taksar, Klass and Assaf [Math. Oper. Res. 13, 1988]. Similarly as in Kallsen and Muhle-Karbe [Ann. Appl.…
We revisit the problem of maximizing expected logarithmic utility from consumption over an infinite horizon in the Black-Scholes model with proportional transaction costs, as studied in the seminal paper of Davis and Norman [Math. Operation…
A speculative agent with Prospect Theory preference chooses the optimal time to purchase and then to sell an indivisible risky asset to maximize the expected utility of the round-trip profit net of transaction costs. The optimization…
We study revenue maximization when a seller offers $k$ identical units to ex ante heterogeneous, unit-demand buyers. While anonymous pricing can be $\Theta(\log k)$ worse than optimal in general multi-unit environments, we show that this…
Bid shading has become a standard practice in the digital advertising industry, in which most auctions for advertising (ad) opportunities are now of first price type. Given an ad opportunity, performing bid shading requires estimating not…
With the increasing use of auctions in online advertising, there has been a large effort to study seller revenue maximization, following Myerson's seminal work, both theoretically and practically. We take the point of view of the buyer in…
We consider the problem of dynamic buying and selling of shares from a collection of $N$ stocks with random price fluctuations. To limit investment risk, we place an upper bound on the total number of shares kept at any time. Assuming that…
We study optimal execution in markets with transient price impact in a competitive setting with $N$ traders. Motivated by prior negative results on the existence of pure Nash equilibria, we consider randomized strategies for the traders and…
We consider indifference pricing of contingent claims consisting of payment flows in a discrete time model with proportional transaction costs and under exponential disutility. This setting covers utility maximisation as a special case. A…
We consider a two-way trading problem, where investors buy and sell a stock whose price moves within a certain range. Naturally they want to maximize their profit. Investors can perform up to $k$ trades, where each trade must involve the…
We consider infinite dimensional optimization problems motivated by the financial model called Arbitrage Pricing Theory. Using probabilistic and functional analytic tools, we provide a dual characterization of the super-replication cost.…
Many auction settings implicitly or explicitly require that bidders are treated equally ex-ante. This may be because discrimination is philosophically or legally impermissible, or because it is practically difficult to implement or…
The classical discrete time model of proportional transaction costs relies on the assumption that a feasible portfolio process has solvent increments at each step. We extend this setting in two directions, allowing for convex transaction…
A standing assumption in the literature on proportional transaction costs is efficient friction. Together with robust no free lunch with vanishing risk, it rules out strategies of infinite variation, as they usually appear in frictionless…