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Skorohod's representation theorem and optimal strategies for markets with frictions

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  • Huy N. Chau
  • Mikl'os R'asonyi

Abstract

We prove the existence of optimal strategies for agents with cumulative prospect theory preferences who trade in a continuous-time illiquid market, transcending known results which pertained only to risk-averse utility maximizers. The arguments exploit an extension of Skorohod's representation theorem for tight sequences of probability measures. This method is applicable in a number of similar optimization problems.

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  • Huy N. Chau & Mikl'os R'asonyi, 2016. "Skorohod's representation theorem and optimal strategies for markets with frictions," Papers 1606.07311, arXiv.org, revised Apr 2017.
    • Handle: RePEc:arx:papers:1606.07311
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    References listed on IDEAS

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    Cited by:

    1. Luca Pratelli & Pietro Rigo, 2023. "A Strong Version of the Skorohod Representation Theorem," Journal of Theoretical Probability, Springer, vol. 36(1), pages 372-389, March.
    2. Erhan Bayraktar & Leonid Dolinskyi & Yan Dolinsky, 2020. "Extended weak convergence and utility maximisation with proportional transaction costs," Finance and Stochastics, Springer, vol. 24(4), pages 1013-1034, October.
    3. Huy N. Chau & Miklos Rasonyi, 2019. "Behavioural investors in conic market models," Papers 1903.08156, arXiv.org.

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