Optimal investment and contingent claim valuation with exponential disutility under proportional transaction costs

Alet Roux, Zhikang Xu

Research output: Contribution to journalArticlepeer-review


We consider indifference pricing of contingent claims consisting of payment flows in a
discrete time model with proportional transaction costs and under exponential disutility.
This setting covers utility maximisation of terminal wealth as a special case. A dual
representation is obtained for the associated disutility minimisation problem, together
with a dynamic procedure for solving it. This leads to efficient and convergent numerical
procedures for indifference pricing, optimal trading strategies and shadow prices that
apply to a wide range of payoffs, a large range of time steps and all magnitudes of
transaction costs.
Original languageEnglish
Number of pages41
JournalInternational Journal of Theoretical and Applied Finance
Early online date12 Jul 2022
Publication statusE-pub ahead of print - 12 Jul 2022

Bibliographical note

This is an author-produced version of the published paper. Uploaded in accordance with the publisher’s self-archiving policy. Further copying may not be permitted; contact the publisher for details

Cite this