Related papers: A Primer on Portfolio Choice with Small Transactio…
We present an optimal investment theorem for a currency exchange model with random and possibly discontinuous proportional transaction costs. The investor's preferences are represented by a multivariate utility function, allowing for…
Optimal trading strategies for pairs trading have been studied by models that try to find either optimal shares of stocks by assuming no transaction costs or optimal timing of trading fixed numbers of shares of stocks with transaction…
This paper concerns the numerical solution of a fully nonlinear parabolic double obstacle problem arising from a finite portfolio selection with proportional transaction costs. We consider the optimal allocation of wealth among multiple…
We theoretically and empirically study portfolio optimization under transaction costs and establish a link between turnover penalization and covariance shrinkage with the penalization governed by transaction costs. We show how the ex ante…
Assuming frictionless trading, classical stochastic portfolio theory (SPT) provides relative arbitrage strategies. However, the costs associated with real-world execution are state-dependent, volatile, and under increasing stress during…
In this paper we investigate a new class of growth rate maximization problems based on impulse control strategies such that the average number of trades per time unit does not exceed a fixed level. Moreover, we include proportional…
We study optimal investment with multiple assets in the presence of small proportional transaction costs. Rather than computing an asymptotically optimal no-trade region, we optimize over suitable trading frequencies. We derive explicit…
Transaction costs appear in financial markets in more than one form. There are several results in the literature on small proportional transaction cost and not that many on fixed transaction cost. In the present work, we heuristically study…
The classical optimal investment and consumption problem with infinite horizon is studied in the presence of transaction costs. Both proportional and fixed costs as well as general utility functions are considered. Weak dynamic programming…
The online portfolio selection (OLPS) problem differs from classical portfolio model problems, as it involves making sequential investment decisions. Many OLPS strategies described in the literature capture market movement based on various…
Optimal execution of a portfolio have been a challenging problem for institutional investors. Traders face the trade-off between average trading price and uncertainty, and traditional methods suffer from the curse of dimensionality. Here,…
Dynamic hedging of an European option under a general local volatility model with small linear transaction costs is studied. A continuous control version of Leland's strategy that asymptotically replicates the payoff is constructed. An…
We consider a dynamic portfolio optimization problem that incorporates predictable returns, instantaneous transaction costs, price impact, and stochastic volatility, extending the classical results of Garleanu and Pedersen (2013), which…
We study the explicit calculation of the set of superhedging portfolios of contingent claims in a discrete-time market model for d assets with proportional transaction costs. The set of superhedging portfolios can be obtained by a recursive…
We build the time series of optimal realized portfolio weights from high-frequency data and we suggest a novel Dynamic Conditional Weights (DCW) model for their dynamics. DCW is benchmarked against popular model-based and model-free…
We study portfolio selection in a model with both temporary and transient price impact introduced by Garleanu and Pedersen (2016). In the large-liquidity limit where both frictions are small, we derive explicit formulas for the…
The introduction of transaction costs into the theory of option pricing could lead not only to the change of return for options, but also to the change of the volatility. On the base of assumption of the portfolio analysis, a new equation…
We consider a multivariate financial market with transaction costs and study the problem of finding the minimal initial capital needed to hedge, without risk, European-type contingent claims. The model is similar to the one considered in…
We investigate an optimal investment problem with a general performance criterion which, in particular, includes discontinuous functions. Prices are modeled as diffusions and the market is incomplete. We find an explicit solution for the…
This paper studies a finite-horizon portfolio selection problem with non-concave terminal utility and proportional transaction costs, in which the commonly used concavification principle for terminal value is no longer applicable. We…