Optimal Portfolio Choice Under Shadow Costs with Fixed Assets when Time-Horizon Is Uncertain

Mondher Bellalah (), Detao Zhang () and Panpan Zhang ()
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Mondher Bellalah: Cy Cergy Paris University
Detao Zhang: Shandong University
Panpan Zhang: Shandong University

Computational Economics, 2020, vol. 56, issue 1, No 2, 5-20

Abstract: Abstract We analyze in this paper the problem of choosing the optimal portfolio for investors under uncertain exit random time. We consider the portfolio choice with fixed assets in the presence of information costs and short sales constraints. This context allows us to focus on the optimal portfolio choice with fixed assets. Investors aim to maximize the ratio between the wealth and the value of the fixed assets. We obtain the optimal portfolio choice strategy with fixed assets when the time horizon is a random exit time. Our results are new in the literature. We illustrate the main findings through some simulation results.

Keywords: Optimal portfolio; Asset price; Uncertain time-horizon; Dynamic programming; HJB equation (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s10614-020-09991-3

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