On the existence of shadow prices for optimal investment with random endowment

Lingqi Gu, Yiqing Lin and Junjian Yang

Papers from arXiv.org

Abstract: In this paper, we consider a num\'eraire-based utility maximization problem under constant proportional transaction costs and random endowment. Assuming that the agent cannot short sell assets and is endowed with a strictly positive contingent claim, a primal optimizer of this utility maximization problem exists. Moreover, we observe that the original market with transaction costs can be replaced by a frictionless shadow market that yields the same optimality. On the other hand, we present an example to show that in some case when these constraints are relaxed, the existence of shadow prices is still warranted.

Date: 2016-02, Revised 2017-02
New Economics Papers: this item is included in nep-upt
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