Duality Theory for Exponential Utility--Based Hedging in the Almgren--Chriss Model

Yan Dolinsky

Papers from arXiv.org

Abstract: In this paper, we obtain a duality result for the exponential utility maximization problem where trading is subject to quadratic transaction costs and the investor is required to liquidate her position at the maturity date. As an application of the duality, we treat utility-based hedging in the Bachelier model. For European contingent claims with a quadratic payoff, we compute explicitly the optimal trading strategy.

Date: 2022-10, Revised 2023-06
New Economics Papers: this item is included in nep-rmg and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2210.03917

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