6533b7cffe1ef96bd12585e0
RESEARCH PRODUCT
A Unified Approach to Portfolio Optimization with Linear Transaction Costs
Valeriy Zakamulinsubject
Structure (mathematical logic)Transaction costMathematical optimizationComputer sciencejel:C63General Mathematicsjel:C61Function (mathematics)Management Science and Operations ResearchSingular controljel:G11Merton's portfolio problemEconomicsPortfolioPortfolio optimizationportfolio choice transaction costs stochastic singular control stochastic impulse control computational methodsSoftwareExpected utility hypothesisdescription
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.
| year | journal | country | edition | language |
|---|---|---|---|---|
| 2004-04-16 | SSRN Electronic Journal |