Shadow price in the power utility case
We consider the problem of maximizing expected power utility from consumption over an infinite horizon in the Black-Scholes model with proportional transaction costs, as studied in Shreve and Soner [Ann. Appl. Probab. 4 (1994) 609-692]. Similar to Kallsen and Muhle-Karbe [Ann. Appl. Probab. 20 (2010) 1341-1358], we derive a shadow price, that is, a frictionless price process with values in the bid-ask spread which leads to the same optimal policy.
|Date of creation:||Dec 2011|
|Date of revision:||Sep 2015|
|Publication status:||Published in Annals of Applied Probability 2015, Vol. 25, No. 5, 2671-2707|
|Contact details of provider:|| Web page: http://arxiv.org/|
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