New research unlocks secrets to optimal investment and asset valuation in markets.
The article explores how to make smart investments and value financial contracts in markets with tricky trading costs and rules. By using a special math technique called convex duality, the researchers found that these problems can be broken down into three parts: risk preferences, trading costs, and portfolio rules. This method works well for both simple and complex market situations, giving us useful pricing formulas and guidelines for making optimal decisions.