English

Simple Bounds for Utility Maximization with Small Transaction Costs

Portfolio Management 2021-03-23 v2 Optimization and Control Trading and Market Microstructure

Abstract

Using elementary arguments, we show how to derive Lp\mathbf{L}_p-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 pave 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

Cite

@article{arxiv.1802.06120,
  title  = {Simple Bounds for Utility Maximization with Small Transaction Costs},
  author = {Bruno Bouchard and Johannes Muhle-Karbe},
  journal= {arXiv preprint arXiv:1802.06120},
  year   = {2021}
}

Comments

15 pages

R2 v1 2026-06-23T00:25:01.882Z