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.
- Bachelier model
- Exponential utility
- linear price impact
All Science Journal Classification (ASJC) codes
- Statistics and Probability
- Statistics, Probability and Uncertainty