Asymptotic methods for transaction costs
Portfolio Management
2024-07-11 v1 Probability
Abstract
We propose a general approximation method for determining optimal trading strategies in markets with proportional transaction costs, with a polynomial approximation of the residual value function. The method is exemplified by several problems from optimally tracking benchmarks, hedging the Log contract, to maximizing utility from terminal wealth. Strategies are also approximated by practically executable, discrete trades. We identify the necessary trade-off between trading frequency and trade sizes to have satisfactory agreement with the theoretically optimal, continuous strategies of infinite activity.
Keywords
Cite
@article{arxiv.2407.07100,
title = {Asymptotic methods for transaction costs},
author = {Eberhard Mayerhofer},
journal= {arXiv preprint arXiv:2407.07100},
year = {2024}
}
Comments
33 pages, 4 figures