A 2014 New Yorker profile of Edward St Aubyn remarked that he “makes frequent reference, in his fiction and his conversation, to works that he studied in the final two years of secondary school, including King Lear, Four Quartets and The Portrait of a Lady”. Anyone with a basic knowledge of St Aubyn’s life and novels might speculate that Lear resonated with the writer because he knows a thing or two about tyrannical fathers and dysfunctional wealthy families, but he is an inspired choice to retell King Lear for Hogarth Shakespeare’s anniversary series. Dunbar emerges as one of the finest contributions in a line-up glittering with literary stars (Margaret Atwood, Jeanette Winterson, Howard Jacobson, Tracy Chevalier and Anne Tyler have already published volumes, with Jo Nesbø and Gillian Flynn still to come).

St Aubyn’s patriarch, Henry Dunbar, is head of a global media empire, which he has divided between his two eldest daughters, Abigail and Megan, the better to enjoy an indulgent semi-retirement as “non-executive chairman”. But as the novel opens, he finds himself incarcerated in an expensive sanatorium in the Lake District thanks to the machinations of his daughters and their lover, Dr Bob, who has doped the old man to effect “enhanced paranoia”. Dunbar is left in the company of Peter Walker, a once-famous alcoholic comedian, an apt Fool given to riffing on absurd puns with the occasional flash of insight and a penchant for playing multiple characters. As Dunbar laments the impulsive fit of pique that led him to sack his attorney and oldest friend Wilson, and disinherit his beloved younger daughter, Florence, Peter plots their “great escape” to the village pub. Meanwhile Abby and Megan need to keep their father incapacitated while they launch a bid to take the Dunbar Trust private, Dr Bob is scheming to betray the sisters to Dunbar’s greatest rival, and Florence and Wilson must outwit the sisters’ mercenaries to find the old man before he falls prey to the impending storm.

It’s a fairly straightforward reworking of the play, though St Aubyn has economically cut out the Gloucester subplot; here it is Dunbar who curses his metaphorical blindness, and believes himself to be on the edge of a precipice. An interviewer once observed the way St Aubyn’s novels “counterpoint personal suffering and social comedy”, and that curious balance is distilled perfectly here. St Aubyn’s version is much funnier than Shakespeare’s; not so much in Peter’s laboured puns, but in the near-pantomime double-crossings of the two elder sisters and Dr Bob, who begins to fear his duplicity may backfire: “The worst of it was that his enemy, as he had now started to think of him, knew that he was in no position to go back to the sisters. What would he say? ‘I was going to betray you, but now it looks like the guy I was going to betray you to is going to betray me, so I want to betray him.’ It was not a confidence-inspiring pitch.”

But there are deeply affecting moments too. Perhaps more than any of Shakespeare’s tragedies, Lear is a play built around the Greek concept of anagnorisis, the hero’s recognition of his true condition. As in the best productions, we are never allowed to forget that the foolish fond old man we pity was once a tyrant. Dunbar encounters a Poor Tom character on the storm-lashed mountains of Cumbria: a former vicar fallen into madness and destitution after one of Dunbar’s tabloids gleefully outed him. Confronted with the human cost of his profits, Dunbar is granted a rare glimpse of self-knowledge, and in a poignant scene of biblical allusion, bathes the man’s feet and dries them with his cashmere scarf. But the old man’s own salvation is more complicated.

Translating the body count of Shakespeare’s tragedies into a convincing contemporary setting is one of the greatest challenges of adapting these works; some of the violence here is knowingly cartoonish, but St Aubyn handles the deaths that matter obliquely and with great sensitivity. He has transplanted the heart of the story into the present and made it feel remarkably authentic. I wonder if anyone has sent Rupert Murdoch a copy.

• Dunbar by Edward St Aubyn is published by Hogarth (£16.99). To order a copy for £12.55 go to guardianbookshop.com or call 0330 333 6846. Free UK p&p over £10, online orders only. Phone orders min p&p of £1.99