TRANSACTION COSTS: A NEW POINT OF VIEW

Roberto Baviera ()
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Roberto Baviera: Departement de Finance & Economie, Groupe HEC, F-78351 Jouy-en-Josas Cedex, France

International Journal of Theoretical and Applied Finance (IJTAF), 2001, vol. 04, issue 02, 335-354

Abstract: We consider a new point of view to portfolio selection in presence of transaction costs which allows us to map the problem into one without costs. The proposed approach connects all the quantities of interest to the average lag between two trades and the probabilities of reaching a price fluctuation of a given size. This active portfolio managing in presence of costs is based on quantities directly measurable in real markets and it leads to analytic results in the Wiener case.

Date: 2001
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DOI: 10.1142/S0219024901001000

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