Efficient Trading Strategies in Financial Markets with Proportional Transaction Costs

22 Pages Posted: 13 Feb 2012

See all articles by Elyes Jouini

Elyes Jouini

Univ. Paris Dauphine - CEREMADE

Luciano Campi

London School of Economics & Political Science (LSE)

Vincent Porte

Calyon

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

Jouini, Elyes and Campi, Luciano and Porte, Vincent, Efficient Trading Strategies in Financial Markets with Proportional Transaction Costs (September 13, 2011). Available at SSRN: https://ssrn.com/abstract=2002931 or http://dx.doi.org/10.2139/ssrn.2002931

Elyes Jouini (Contact Author)

Univ. Paris Dauphine - CEREMADE ( email )

Place du Marechal de Lattre de Tassigny
Paris Cedex 16, 75775
France
+ 33 1 44 05 46 75 (Phone)
+ 33 1 44 05 45 99 (Fax)

Luciano Campi

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Vincent Porte

Calyon ( email )

France

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
86
Abstract Views
942
Rank
532,678
PlumX Metrics