Related papers: Balancing small fixed and proportional transaction…
We consider fractional Black-Scholes market with proportional transaction costs. When transaction costs are present, one trades periodically i.e. we have the discrete trading with equidistance $n^{-1}$ between trading times. We derive a non…
We consider Merton's problem with proportional transaction costs. It is well known that the optimal investment strategy is characterized by two trading boundaries, the buy boundary and the sell boundary, between which lies the no-trading…
The effect of proportional transaction costs on systematically generated portfolios is studied empirically. The performance of several portfolios (the index tracking portfolio, the equally-weighted portfolio, the entropy-weighted portfolio,…
Proportional transaction costs present difficult theoretical problems in trading algorithm design, on account of their lack of analytical tractability. The author derives a solution of DT-NT-DT form for an arbitrary model in which the the…
We revisit the optimal investment and consumption problem with proportional transaction costs. We prove that both the value function and the slopes of the lines demarcating the no-trading region are analytic functions of cube root of the…
An investor with constant relative risk aversion trades a safe and several risky assets with constant investment opportunities. For a small fixed transaction cost, levied on each trade regardless of its size, we explicitly determine the…
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…
Duality for robust hedging with proportional transaction costs of path dependent European options is obtained in a discrete time financial market with one risky asset. Investor's portfolio consists of a dynamically traded stock and a static…
The Merton investment-consumption problem is fundamental, both in the field of finance, and in stochastic control. An important extension of the problem adds transaction costs, which is highly relevant from a financial perspective but also…
Two major financial market complexities are transaction costs and uncertain volatility, and we analyze their joint impact on the problem of portfolio optimization. When volatility is constant, the transaction costs optimal investment…
In this article we consider the Merton problem in a market with a single risky asset and transaction costs. We give a complete solution of the problem up to the solution of a free-boundary problem for a first-order differential equation,…
The classical discrete time model of proportional transaction costs relies on the assumption that a feasible portfolio process has solvent increments at each step. We extend this setting in two directions, allowing for convex transaction…
This survey is an introduction to asymptotic methods for portfolio-choice problems with small transaction costs. We outline how to derive the corresponding dynamic programming equations and simplify them in the small-cost limit. This allows…
American options are studied in a general discrete market in the presence of proportional transaction costs, modelled as bid-ask spreads. Pricing algorithms and constructions of hedging strategies, stopping times and martingale…
This paper considers the finite horizon portfolio rebalancing problem in terms of mean-variance optimization, where decisions are made based on current information on asset returns and transaction costs. The study's novelty is that the…
We consider the problem of option hedging in a market with proportional transaction costs. Since super-replication is very costly in such markets, we replace perfect hedging with an expected loss constraint. Asymptotic analysis for small…
This paper deals with the problem of discrete-time option pricing by the mixed fractional version of Merton model with transaction costs. By a mean-self-financing delta hedging argument in a discrete-time setting, a European call option…
We consider a discrete time financial market with proportional transaction costs under model uncertainty, and study a num\'eraire-based semi-static utility maximization problem with an exponential utility preference. The randomization…
The pricing and hedging of a general class of options (including American, Bermudan and European options) on multiple assets are studied in the context of currency markets where trading is subject to proportional transaction costs, and…
In this short note, we consider mean-variance optimized portfolios with transaction costs. We show that introducing quadratic transaction costs makes the optimization problem more difficult than using linear transaction costs. The reason…