Simple Bounds for Transaction Costs

Bruno Bouchard () and Johannes Muhle-Karbe
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Bruno Bouchard: CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique, PSL - Université Paris Sciences et Lettres
Johannes Muhle-Karbe: University of Michigan [Ann Arbor] - University of Michigan System

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Abstract: Using elementary arguments, we derive Lp-error bounds for the approximation of frictionless wealth process in markets with proportional transaction costs. For utilities with bounded risk aversion, these estimates yield lower bounds for the frictional value function, which paves the way for its asymptotic analysis using stability results for viscosity solutions. Using tools from Malliavin calculus, we also derive simple sufficient conditions for the regularity of frictionless optimal trading strategies, the second main ingredient for the asymptotic analysis of small transaction costs.

Keywords: Transaction costs; Utility maximization; Asymptotic analysis (search for similar items in EconPapers)
Date: 2022-04
New Economics Papers: this item is included in nep-upt
Note: View the original document on HAL open archive server: https://hal.science/hal-01711371v1
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Published in Stochastic Processes and their Applications, 2022, 146, pp.98-113. ⟨10.1016/j.spa.2022.01.008⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01711371

DOI: 10.1016/j.spa.2022.01.008

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