Market with transaction costs: optimal shadow state-price densities and exponential utility maximization

Abstract

This thesis discusses the financial market model with proportional transaction costs considered in Cvitanic and Karatzas (1996) (hereafter we use CK (1996)). For a modified dual problem introduced by Choulli (2009), I discuss solutions under weaker conditions than those of CK (1996), and furthermore the obtained solutions generalize the examples treated in CK (1996). Then, I consider the exponential utility which does not belong to the family of utility considered by CK (1996) due to the Inada condition. Finally, I elaborate the same results as in CK (1996) for the exponential utility, and I derive other related results using the specificity of the exponential utility function as well. These lead to a different method/approach than CK (1996) for our utility maximization problem, and different notion of admissibility for financial strategies as well.