Discrete-Time Shadow Price Revisited
Abstract
We construct a discrete-time shadow price for a market with multiple assets and transaction costs, represented by bid and ask prices. A shadow price is a price process such that the optimal utility of terminal wealth in a corresponding frictionless market coincides with that in the original market with transaction costs. Our solution proceeds in three steps: first, we solve the static problem for two assets; second, we extend this to construct a shadow price for a dynamic model; and finally, we generalize the construction to the case of multiple assets.
Fields of Study & Subjects
Complex Systems and Time Series Analysis
Stochastic processes and financial applications
Economic theories and models
Publication details
- Journal / source
- Applied Mathematics & Optimization
- Publisher
- Springer Science and Business Media LLC
- Volume
- 94
- Issue
- 1
- Publication date
- 2 June 2026
- Language
- EN