The impact of transaction costs in portfolio optimization

Portfolio Optimization under Transaction Costs in the Crr Model Portfolio Optimization under Transaction Costs in the Crr Model

In the CRR model we introduce a transaction cost structure which covers piecewise proportional, fixed and constant costs. For a general utility function we formulate the problem of maximizing the expected utility of terminal wealth as a Markov control problem. An existence result is given and optimal strategies can be described by solutions of the dynamic programming equation. For logarithmic u...

The Impact of Transaction Costs on Rebalancing an Investment Portfolio in Portfolio Optimization

Abstract—Constructing a portfolio of investments is one of the most significant financial decisions facing individuals and institutions. In accordance with the modern portfolio theory maximization of return at minimal risk should be the investment goal of any successful investor. In addition, the costs incurred when setting up a new portfolio or rebalancing an existing portfolio must be include...

Portfolio Optimization Under Fixed Transaction Costs

Portfolio optimization under transaction costs in the CRR model

In the CRR model we introduce a transaction cost structure which covers piecewise proportional, fixed and constant costs. For a general utility function we formulate the problem of maximizing the expected utility of terminal wealth as a Markov control problem. An existence result is given and optimal strategies can be described by solutions of the dynamic programming equation. For logarithmic u...

On using shadow prices in portfolio optimization with transaction costs

In frictionless markets, utility maximization problems are typically solved either by stochastic control or by martingale methods. Beginning with the seminal paper of Davis and Norman [Math. Oper. Res. 15 (1990) 676–713], stochastic control theory has also been used to solve various problems of this type in the presence of proportional transaction costs. Martingale methods, on the other hand, h...