On Discrete Probability Approximations for Transaction Cost Problems

Nabeel Butt ()
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Nabeel Butt: Lahore School of Economics

Asia-Pacific Financial Markets, 2019, vol. 26, issue 3, No 5, 365-389

Abstract: Abstract In this paper we consider a discrete-time formulation of dynamic transaction cost problems. We examine applicability of numerical discrete probability approximation as an alternative simplistic approach to solve dynamic transaction cost problems. We provide a computational study of a lattice-based heuristic method on simple transaction cost models and highlight its many advantages. The solution of these problems provides a dynamic investor with important insights as to how the portfolio should be re-balanced when faced with transaction costs.

Keywords: Dynamic portfolio management; Transaction cost; Dynamic programming; Discrete probability approximations; Stochastic optimal control (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s10690-019-09270-8

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