GROWTH-OPTIMAL STRATEGIES WITH QUADRATIC FRICTION OVER FINITE-TIME INVESTMENT HORIZONS

Erik Aurell () and Paolo Muratore-Ginanneschi ()
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Erik Aurell: Swedish Institute of Computer Science, SICS Box 1263 SE-16429, Kista, Sweden;
Paolo Muratore-Ginanneschi: Departments of Mathematics, P.O. Box 4 FIN-00014, University of Helsinki, Finland

International Journal of Theoretical and Applied Finance (IJTAF), 2004, vol. 07, issue 05, 645-657

Abstract: We investigate the growth optimal strategy over a finite time horizon for a stock and bond portfolio in an analytically solvable multiplicative Markovian market model. We show that the optimal strategy consists in holding the amount of capital invested in stocks within an interval around an ideal optimal investment. The size of the holding interval is determined by the intensity of the transaction costs and the time horizon.

Keywords: Statistical finance; Markov process; exponential growth rate; transaction costs; stochastic optimization; multiscale analysis (search for similar items in EconPapers)
Date: 2004
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DOI: 10.1142/S0219024904002578

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