Utility Maximization in a Binomial Model with transaction costs: a Duality Approach Based on the Shadow Price Process

Christian Bayer and Bezirgen Veliyev

Papers from arXiv.org

Abstract: We consider the problem of optimizing the expected logarithmic utility of the value of a portfolio in a binomial model with proportional transaction costs with a long time horizon. By duality methods, we can find expressions for the boundaries of the no-trade-region and the asymptotic optimal growth rate, which can be made explicit for small transaction costs. Here we find that, contrary to the classical results in continuous time, the size of the no-trade-region as well as the asymptotic growth rate depend analytically on the level of transaction costs, implying a linear first order effect of perturbations of (small) transaction costs. We obtain the asymptotic expansion by an almost explicit construction of the shadow price process.

Date: 2012-09
New Economics Papers: this item is included in nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/1209.5175 Latest version (application/pdf)

Related works:
Journal Article: UTILITY MAXIMIZATION IN A BINOMIAL MODEL WITH TRANSACTION COSTS: A DUALITY APPROACH BASED ON THE SHADOW PRICE PROCESS (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1209.5175

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().