Multi-asset portfolio optimization with transaction cost

C. Atkinson and S. Mokkhavesa

Applied Mathematical Finance, 2004, vol. 11, issue 2, 95-123

Abstract: The inclusion of transaction costs in the optimal portfolio selection and consumption rule problem is accomplished via the use of perturbation analyses. The portfolio under consideration consists of more than one risky asset, which makes numerical methods impractical. The objective is to establish both the transaction and the no-transaction regions that characterize the optimal investment strategy. The optimal transaction boundaries for two and three risky assets portfolios are solved explicitly. A procedure for solving the N risky assets portfolio is described. The formulation used also reduces the restriction on the functional form of the utility preference.

Date: 2004
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DOI: 10.1080/13504860410001693496

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