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 between feasible trading strategies and shadow execution prices with a martingale measure. Utility maximizing strategies exist even if arbitrage is present, because it is not scalable at will.
Guasoni P, Rasonyi M (2015). HEDGING, ARBITRAGE AND OPTIMALITY WITH SUPERLINEAR FRICTIONS. THE ANNALS OF APPLIED PROBABILITY, 25(4), 2066-2095 [10.1214/14-AAP1043].
HEDGING, ARBITRAGE AND OPTIMALITY WITH SUPERLINEAR FRICTIONS
Guasoni PCo-primo
;
2015
Abstract
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 between feasible trading strategies and shadow execution prices with a martingale measure. Utility maximizing strategies exist even if arbitrage is present, because it is not scalable at will.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
