Existence of Shadow Prices in Finite Probability Spaces

Jan Kallsen and Johannes Muhle-Karbe

Papers from arXiv.org

Abstract: A shadow price is a process lying within the bid/ask prices of a market with proportional transaction costs, such that maximizing expected utility from consumption in the frictionless market with this price process 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.

Date: 2009-11, Revised 2010-11
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