English

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

R2 v1 2026-06-28T17:34:45.403Z