arXiv research

Paper optimizes trading strategies by creating shadow prices for markets with transaction costs.

For portfolio choice problems with proportional transaction costs, we discuss whether or not there exists a "shadow price", i.e., a least favorable frictionless market extension leading to the same optimal strategy and utility. By means of an explicit counter-example, we show that shadow prices may fail to exist even i…

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 probabilit…

To any utility maximization problem under transaction costs one can assign a frictionless model with a price process $S^*$, lying in the bid/ask price interval $[\underline S, \bar{S}]$. Such process $S^*$ is called a \emph{shadow price} if it provides the same optimal utility value as in the original model with bid-as…

Paper discusses shadow prices for optimal investment with random endowment and transaction costs.

For portfolio optimisation under proportional transaction costs, we provide a duality theory for general cadlag price processes. In this setting, we prove the existence of a dual optimiser as well as a shadow price process in a generalised sense. This shadow price is defined via a "sandwiched" process consisting of a p…

The paper shows how to find shadow prices for portfolio optimization with transaction costs in fractional Brownian motion models.

A new method predicts future paths using a Monte-Carlo approach.

We consider the problem of maximizing expected power utility from consumption over an infinite horizon in the Black-Scholes model with proportional transaction costs, as studied in Shreve and Soner [Ann. Appl. Probab. 4 (1994) 609-692]. Similar to Kallsen and Muhle-Karbe [Ann. Appl. Probab. 20 (2010) 1341-1358], we der…

In a financial market with a continuous price process and proportional transaction costs we investigate the problem of utility maximization of terminal wealth. We give sufficient conditions for the existence of a shadow price process, i.e.~a least favorable frictionless market leading to the same optimal strategy and u…

In frictionless markets, utility maximization problems are typically solved either by stochastic control or by martingale methods. Beginning with the seminal paper of Davis and Norman [Math. Oper. Res. 15 (1990) 676--713], stochastic control theory has also been used to solve various problems of this type in the presen…

For utility maximization problems under proportional transaction costs, it has been observed that the original market with transaction costs can sometimes be replaced by a frictionless "shadow market" that yields the same optimal strategy and utility. However, the question of whether or not this indeed holds in general…

While absence of arbitrage in frictionless financial markets requires price processes to be semimartingales, non-semimartingales can be used to model prices in an arbitrage-free way, if proportional transaction costs are taken into account. In this paper, we show, for a class of price processes which are not necessaril…

Develops a method to estimate the shadow riskless rate from empirical data.

We derive asset pricing formula for markets with incomplete information and subjective views.

Unified framework for ESG-inclusive portfolio optimization and pricing.

Study utility maximization with random endowment and costs, proving duality and constructing shadow market.

New technique reduces verification time for neural networks.

This paper studies the utility maximization on the terminal wealth with random endowments and proportional transaction costs. To deal with unbounded random payoffs from some illiquid claims, we propose to work with the acceptable portfolios defined via the consistent price system (CPS) such that the liquidation value p…

Myopic optimization outperforms reinforcement learning in portfolio management, leading to lower returns and higher risks.

We consider the problem of optimizing the expected logarithmic utility of the value of a portfolio in a binomial model with proportional transaction costs with a long time horizon. By duality methods, we can find expressions for the boundaries of the no-trade-region and the asymptotic optimal growth rate, which can be …

In a continuous-time model with multiple assets described by càdlàg processes, this paper characterizes superhedging prices, absence of arbitrage, and utility maximizing strategies, under general frictions that make execution prices arbitrarily unfavorable for high trading intensity. Such frictions induce a duality bet…

We revisit the optimal investment and consumption model of Davis and Norman (1990) and Shreve and Soner (1994), following a shadow-price approach similar to that of Kallsen and Muhle-Karbe (2010). Making use of the completeness of the model without transaction costs, we reformulate and reduce the Hamilton-Jacobi-Bellma…

Extends option pricing framework without risk-free asset using Levy jumps.

In a market with one safe and one risky asset, an investor with a long horizon, constant investment opportunities, and constant relative risk aversion trades with small proportional transaction costs. We derive explicit formulas for the optimal investment policy, its implied welfare, liquidity premium, and trading volu…

New invariants for singular knots and links defined using shadow structures.

Special shadow-complexity equals k+1 for k copies of S1×S3.

New invariant measures complexity of 2-knots in 4D space.

A shadow diagram is a knot diagram with under-over information omitted; a shadow movie is a sequence of shadow diagrams related by shadow Reidemeister moves. We show that not every shadow movie arises as the shadow of a Reidemeister movie, meaning a sequence of classical knot diagrams related by classical Reidemeister …

The paper addresses utility maximization in markets with transaction costs, focusing on stability and optimal dual processes.

Paper studies knotoid chirality using shadow quandle colorings and invariants.

Study stability of contingent claim solutions under probabilistic perturbations.

Every shadow can be a knot or a connected sum of trefoils.

The average shadowing property is considered for set-valued dynamical systems, generated by parameterized IFS, which are uniformly contracting, or conjugacy, or products of such ones. We also prove that if a continuous surjective IFS F on a compact metric space X has the aver- age shadowing property, then every point x…

We construct elements of the third quandle homology groups of knot quandles, which are called the shadow fundamental classes. They play the same roles for the shadow quandle cocycle invariants of knots as the fundamental classes of knot quandles does for the quandle cocycle invariants. As an application of the shadow f…

The paper constructs corks and exotic 4-manifolds with controlled shadow-complexity.

Computes Kauffman bracket polynomial for specific 2-tangle shadows.

Extends martingale transport for robust finance problems.

The paper presents fundamental groups of complements of shadows in 4-balls.

An asset network systemic risk (ANWSER) model is presented to investigate the impact of how shadow banks are intermingled in a financial system on the severity of financial contagion. Particularly, the focus of this study is the impact of the following three representative topologies of an interbank loan network betwee…

Shadow biquandles and local biquandles have similar homology and invariants.

Study on inflection points of plane curve shadows with fixed embedded shapes.

Study optimizes investment and claim valuation with transaction costs and disutility.

Proves condition for 4-manifolds with sphere boundary to be standard.

Method constructs shadowed polyhedra from divides, linking them to Lefschetz fibrations.

We introduce an associative algebra Z[X,S] associated to a birack shadow and define enhancements of the birack counting invariant for classical knots and links via representations of Z[X,S] known as shadow modules. We provide examples which demonstrate that the shadow module enhanced invariants are not determined by th…

New forms generalize Whitney forms with rational coefficients for numerical analysis.

Study of quandle coloring quivers with dihedral quandles.