Abstract
In this paper we obtain a duality result for the exponential utility maximization problem where trading is subject to quadratic transaction costs and the investor is required to liquidate her position at the maturity date. As an application of the duality, we treat utility-based hedging in the Bachelier model. For European contingent claims with a quadratic payoff, we compute the optimal trading strategy explicitly.
| Original language | English |
|---|---|
| Pages (from-to) | 420-438 |
| Number of pages | 19 |
| Journal | Journal of Applied Probability |
| Volume | 61 |
| Issue number | 2 |
| DOIs | |
| State | Published - 3 Jun 2024 |
Bibliographical note
Publisher Copyright:© The Author(s), 2023. Published by Cambridge University Press on behalf of Applied Probability Trust.
Keywords
- Bachelier model
- Exponential utility
- duality
- linear price impact