A Unified Approach to Portfolio Optimization with Linear Transaction Costs
Author | : Valeriy Zakamulin |
Publisher | : |
Total Pages | : 28 |
Release | : 2010 |
ISBN-10 | : OCLC:1290250964 |
ISBN-13 | : |
Rating | : 4/5 (64 Downloads) |
Book excerpt: In this paper we study the continuous time optimal portfolio selection problem for an investor with a finite horizon who maximizes expected utility of terminal wealth and faces transaction costs in the capital market. It is well known that, depending on a particular structure of transaction costs, such a problem is formulated and solved within either stochastic singular control or stochastic impulse control framework. In this paper we propose a unified framework, which generalizes the contemporary approaches and is capable to deal with any problem where transaction costs are a linear/piecewise-linear function of the volume of trade. We also discuss some methods for solving numerically the problem within our unified framework.