A unified approach to portfolio optimization with linear transaction costs

Valeri Zakamouline ()

Mathematical Methods of Operations Research, 2005, vol. 62, issue 2, 319-343

Abstract: 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. Copyright Springer-Verlag 2005

Keywords: Portfolio choice; Transaction costs; Stochastic singular control; Stochastic impulse control; Computational methods (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:spr:mathme:v:62:y:2005:i:2:p:319-343

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DOI: 10.1007/s00186-005-0005-9

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