Shadow prices for continuous processes

Christoph Czichowsky, Walter Schachermayer and Junjian Yang

Papers from arXiv.org

Abstract: In a financial market with a continuous price process and proportional transaction costs we investigate the problem of utility maximization of terminal wealth. We give sufficient conditions for the existence of a shadow price process, i.e.~a least favorable frictionless market leading to the same optimal strategy and utility as in the original market under transaction costs. The crucial ingredients are the continuity of the price process and the hypothesis of "no unbounded profit with bounded risk". A counter-example reveals that these hypotheses cannot be relaxed.

Date: 2014-08, Revised 2015-05
New Economics Papers: this item is included in nep-upt
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