A Unified Approach to Portfolio Optimization with Linear Transaction Costs

Valeri Zakamouline
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Valeri Zakamouline: Bodoe Graduate School of Business

GE, Growth, Math methods from University Library of Munich, Germany

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.

Keywords: portfolio choice; transaction costs; stochastic singular control; stochastic impulse control; computational methods (search for similar items in EconPapers)
JEL-codes: C61 C63 G11 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2004-04-16, Revised 2004-04-28
New Economics Papers: this item is included in nep-cfn
Note: Type of Document - pdf; pages: 36
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpge:0404003

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