In this paper, we consider the utility indifference pricing and utility-based pricing in the market with transaction costs. The utility maximization problem including contingent claims in the market with transaction costs has been considered by Bouchard (2002). Following his results, we consider...

In a market with one safe and one risky asset, an investor with a long horizon, constant investment opportunities and constant relative risk aversion trades with small proportional transaction costs. We derive explicit formulas for the optimal investment policy, its implied welfare, liquidity...

For portfolio choice problems with proportional transaction costs, we discuss whether or not there exists a shadow price, i.e., a least favorable frictionless market extension leading to the same optimal strategy and utility. By means of an explicit counter-example, we show that shadow prices...