NDLI: Optimal Investment with Random Endowments and Transaction Costs: Duality Theory and Shadow Prices

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Optimal Investment with Random Endowments and Transaction Costs: Duality Theory and Shadow Prices

Content Provider	Scilit
Author	Bayraktar, Erhan Yu, Xiang
Copyright Year	2016
Description	Journal: SSRN Electronic Journal This paper studies the utility maximization problem on the terminal wealth with both random endowments and proportional transaction costs. To deal with unbounded random payoffs from some illiquid claims, we propose to work with the acceptable portfolios defined via the consistent price system (CPS) such that the liquidation value processes stay above some stochastic thresholds. In the market consisting of one riskless bond and one risky asset, we obtain a type of the super-hedging result. Based on this characterization of the primal space, the existence and uniqueness of the optimal solution for the utility maximization problem are established using the convex duality analysis. As an important application of the duality theory, we provide some sufficient conditions for the existence of a shadow price process with random endowments in a generalized form as well as in the usual sense using acceptable portfolios.
Related Links	http://arxiv.org/pdf/1504.00310 https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=2779119
ISSN	10914358
e-ISSN	15565068
DOI	10.2139/ssrn.2779119
Journal	SSRN Electronic Journal
Language	English
Publisher	Elsevier BV
Publisher Date	2016-04-25
Access Restriction	Open
Subject Keyword	Journal: SSRN Electronic Journal Automotive Engineering Operations Research and Management Science Proportional Transaction Costs Unbounded Random Endowments Acceptable Portfolios Superhedging Theorem Utility Maximization Shadow Prices Convex Duality
Content Type	Text
Resource Type	Article
Subject	Public Health, Environmental and Occupational Health Psychiatry and Mental Health

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