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Probability and Computational Finance Seminar
Jin Hyuk Choi
Title: Utility maximization problem with transaction cost

Abstract: Let us consider an economic agent who can dynamically invest in one stock(geometric BM) and one bond(cash), and needs to pay proportional transaction costs. The agent's goal is to maximize expected utility(log or power) from consumption. In this situation, we construct a shadow price process, which somehow absorbs transaction costs. By using this shadow price process, we can solve the maximization problem rather easily, and also find equivalent condition to the finiteness of the value function.

This is joint work with Mihai Sirbu and Gordan Zitkovic.

Pdf File: Choi's_slides.pdf
Date: Monday, September 12, 2011
Time: 5:00 pm
Location: Wean Hall 6423
Submitted by:  Kasper Larsen