Multi-asset portfolio selection problem with transaction costs

Marianne Akian, Jose Luis Menaldi and Agnès Sulem

Mathematics and Computers in Simulation (MATCOM), 1995, vol. 38, issue 1, 163-172

Abstract: This paper considers the optimal consumption and investiment policy for an investor who has available one bank account paying a fixed interest rate r and n risky assets whose prices are log-normal diffusions. We suppose that transactions between the assets incur a cost proportional to the size of the transaction. The problem is to maximize the total utility of consumption. Dynamic Programming leads to a Variational Inequality for the value function which is solved by using a numerical algorithm based on policies iterations and multigrid methods. Numerical results are displayed for n = 1 and n = 2.

Keywords: Portfolio selection; Transaction costs; Viscosity solution; Variational inequality; Multigrid methods (search for similar items in EconPapers)
Date: 1995
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:matcom:v:38:y:1995:i:1:p:163-172

DOI: 10.1016/0378-4754(93)E0079-K

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