A Numerical Scheme for A Singular control problem: Investment-Consumption Under Proportional Transaction Costs

Arash Fahim and Wan-Yu Tsai

Papers from arXiv.org

Abstract: This paper concerns the numerical solution of a fully nonlinear parabolic double obstacle problem arising from a finite portfolio selection with proportional transaction costs. We consider the optimal allocation of wealth among multiple stocks and a bank account in order to maximize the finite horizon discounted utility of consumption. The problem is mainly governed by a time-dependent Hamilton-Jacobi-Bellman equation with gradient constraints. We propose a numerical method which is composed of Monte Carlo simulation to take advantage of the high-dimensional properties and finite difference method to approximate the gradients of the value function. Numerical results illustrate behaviors of the optimal trading strategies and also satisfy all qualitative properties proved in Dai et al. (2009) and Chen and Dai (2013).

Date: 2017-11
New Economics Papers: this item is included in nep-cmp, nep-mst and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/1711.01017 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1711.01017

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators (help@arxiv.org).