Existence of shadow prices in finite probability spaces

Jan Kallsen () and Johannes Muhle-Karbe ()

Mathematical Methods of Operations Research, 2011, vol. 73, issue 2, 262 pages

Abstract: A shadow price is a process $${\widetilde{S}}$$ lying within the bid/ask prices $${\underline{S},\overline{S}}$$ of a market with proportional transaction costs, such that maximizing expected utility from consumption in the frictionless market with price process $${\widetilde{S}}$$ leads to the same maximal utility as in the original market with transaction costs. For finite probability spaces, this note provides an elementary proof for the existence of such a shadow price. Copyright Springer-Verlag 2011

Keywords: Transactions costs; Portfolio optimization; Shadow price; 91B28; 91B16 (search for similar items in EconPapers)
Date: 2011
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DOI: 10.1007/s00186-011-0345-6

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