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

Alet Roux, Zhikang Xu

Research output: Contribution to journalArticlepeer-review

Abstract

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
DOIs
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