Duality theory for exponential utility-based hedging in the Almgren-Chriss model

Yan Dolinsky

doi:https://doi.org/10.1017/jpr.2023.49

Duality theory for exponential utility-based hedging in the Almgren-Chriss model

Yan Dolinsky

Department of Statistics

The Hebrew University of Jerusalem

Research output: Contribution to journal › Article › peer-review

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	https://doi.org/10.1017/jpr.2023.49
State	Published - 3 Jun 2024

Keywords

Bachelier model
Exponential utility
duality
linear price impact

All Science Journal Classification (ASJC) codes

Statistics and Probability
Statistics, Probability and Uncertainty
General Mathematics

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https://doi.org/10.1017/jpr.2023.49

Cite this

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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.",

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KW - linear price impact

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Duality theory for exponential utility-based hedging in the Almgren-Chriss model

Abstract

Keywords

All Science Journal Classification (ASJC) codes

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