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Existence of Shadow Prices in Finite Probability Spaces

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  • Jan Kallsen
  • Johannes Muhle-Karbe

Abstract

A shadow price is a process lying within the bid/ask prices of a market with proportional transaction costs, such that maximizing expected utility from consumption in the frictionless market with this price process leads to the same maximal utility as in the original market with transaction costs. For finite probability spaces, this note provides an elementary proof for the existence of such a shadow price.

Suggested Citation

  • Jan Kallsen & Johannes Muhle-Karbe, 2009. "Existence of Shadow Prices in Finite Probability Spaces," Papers 0911.4801, arXiv.org, revised Nov 2010.
    • Handle: RePEc:arx:papers:0911.4801
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    References listed on IDEAS

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    5. Walter Schachermayer, 2004. "The Fundamental Theorem of Asset Pricing under Proportional Transaction Costs in Finite Discrete Time," Mathematical Finance, Wiley Blackwell, vol. 14(1), pages 19-48, January.
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