Optimal Investment for Retail Investors with Flooredand Capped Costs

Christoph Belak, Lukas Mich and Frank T. Seifried

No 2019-06, Working Paper Series from University of Trier, Research Group Quantitative Finance and Risk Analysis

Abstract: We study optimal portfolio decisions for a retail investor that faces proportional costs which are oored and capped at some minimal and maximal cost levels, respectively, in a classical Black-Scholes market. We provide a construction of optimal trading strategies and characterize the value function as the unique viscosity solution of the associated quasi-variational inequalities. Moreover, we numerically investigate the optimal trading regions and a distinct structure: Theno-trading region is vVv-shaped, and all optimal trades for small (large) levels of wealth incur the oored (capped) cost; proportional cost trades occur only in anarrow intermediate wealth regime.

Keywords: Portfolio Optimization; Transaction Costs; Retail Investor (search for similar items in EconPapers)
JEL-codes: C61 G11 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2019
New Economics Papers: this item is included in nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:trr:qfrawp:201906

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