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http://hdl.handle.net/10397/89351
| Title: | Utility maximization with proportional transaction costs under model uncertainty | Authors: | Deng, S Tan, X Yu, X |
Issue Date: | Nov-2020 | Source: | Mathematics of operations research, Nov. 2020, v. 45, no. 4, p. 1210-1236 | Abstract: | We consider a discrete time financial market with proportional transaction costs under model uncertainty and study a numéraire-based semistatic utility maximization problem with an exponential utility preference. The randomization techniques recently developed in Bouchard, Deng, and Tan [Bouchard B, Deng S, Tan X (2019) Super-replication with proportional transaction cost under model uncertainty. Math. Finance 29(3): 837-860.], allow us to transform the original problem into a frictionless counterpart on an enlarged space. By suggesting a different dynamic programming argument than in Bartl [Bartl D (2019) Exponential utility maximization under model uncertainty for unbounded endowments. Ann. Appl. Probab. 29(1):577-612.], we are able to prove the existence of the optimal strategy and the convex duality theorem in our context with transaction costs. In the frictionless framework, this alternative dynamic programming argument also allows us to generalize the main results in Bartl [Bartl D (2019) Exponential utility maximization under model uncertainty for unbounded endowments. Ann. Appl. Probab. 29(1):577-612.] to a weaker market condition. Moreover, as an application of the duality representation, some basic features of utility indifference prices are investigated in our robust setting with transaction costs. | Keywords: | Convex duality Model uncertainty Randomization method Transaction costs Utility indifference pricing Utility maximization |
Publisher: | Institute for Operations Research and the Management Sciences | Journal: | Mathematics of operations research | ISSN: | 0364-765X | EISSN: | 1526-5471 | DOI: | 10.1287/MOOR.2019.1029 | Rights: | Copyright: © 2020 INFORMS This is an Author Accepted Manuscript of an article published by INFORMS, available online: https://doi.org/10.1287/moor.2019.1029 |
| Appears in Collections: | Journal/Magazine Article |
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