A Primer on Portfolio Choice with Small Transaction Costs

Johannes Muhle-Karbe, Max Reppen and H. Mete Soner

Papers from arXiv.org

Abstract: This survey is an introduction to asymptotic methods for portfolio-choice problems with small transaction costs. We outline how to derive the corresponding dynamic programming equations and simplify them in the small-cost limit. This allows to obtain explicit solutions in a wide range of settings, which we illustrate for a model with mean-reverting expected returns and proportional transaction costs. For even more complex models, we present a policy iteration scheme that allows to compute the solution numerically.

Date: 2016-12, Revised 2017-05
New Economics Papers: this item is included in nep-cmp
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Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1612.01302

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