Shadow price in the power utility case
Portfolio Management
2015-09-10 v3 Probability
Abstract
We consider the problem of maximizing expected power utility from consumption over an infinite horizon in the Black-Scholes model with proportional transaction costs, as studied in Shreve and Soner [Ann. Appl. Probab. 4 (1994) 609-692]. Similar to Kallsen and Muhle-Karbe [Ann. Appl. Probab. 20 (2010) 1341-1358], we derive a shadow price, that is, a frictionless price process with values in the bid-ask spread which leads to the same optimal policy.
Cite
@article{arxiv.1112.4385,
title = {Shadow price in the power utility case},
author = {Attila Herczegh and Vilmos Prokaj},
journal= {arXiv preprint arXiv:1112.4385},
year = {2015}
}
Comments
Published at http://dx.doi.org/10.1214/14-AAP1058 in the Annals of Applied Probability (http://www.imstat.org/aap/) by the Institute of Mathematical Statistics (http://www.imstat.org)