Efficient Trading Strategies in Financial Markets with Proportional Transaction Costs
22 Pages Posted: 13 Feb 2012
Date Written: September 13, 2011
Abstract
In this article, we characterize efficient portfolios, i.e. portfolios which are optimal for at least one rational agent, in a very general financial market model of foreign currencies with proportional transaction costs. In our setting, transaction costs may be random, time-dependant, have jumps and the preferences of the agents are modeled by multivariate expected utility functions. Thanks to the dual formulation of expected multivariate utility maximization problem established in Campi and Owen, we provide a complete characterization of efficient portfolios, generalizing earlier results of Dybving and Jouini and Callal. We basically show that a portfolio is efficient if and only if it is cyclically anticomonotonic with respect to at least one consistent price system. Finally, we introduce the notion of utility price of a given contingent claim as the minimal amount of a given initial portfolio allowing any agent to reach the claim by trading in the market and give a dual representation of it.
Keywords: cyclic anticomonotonicity utility maximization, proportional transaction cost, duality, utility price
JEL Classification: 91B16, 91B28
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Comonotonic Measures of Multivariate Risks
By Ivar Ekeland, Alfred Galichon, ...
-
Dual Theory of Choice Under Multivariate Risks
By Alfred Galichon and Marc Henry