Related papers: The impact of proportional transaction costs on sy…
In this paper, we develop the theory of functional generation of portfolios in an equity market with changing dimension. By introducing dimensional jumps in the market, as well as jumps in stock capitalization between the dimensional jumps,…
We investigate the general structure of optimal investment and consumption with small proportional transaction costs. For a safe asset and a risky asset with general continuous dynamics, traded with random and time-varying but small…
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 consider the multi-period portfolio optimization problem with a single asset that can be held long or short. Due to the presence of transaction costs, maximizing the immediate reward at each period may prove detrimental, as frequent…
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…
Managing investment portfolios is an old and well know problem in multiple fields including financial mathematics and financial engineering as well as econometrics and econophysics. Multiple different concepts and theories were used so far…
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…
In this paper we consider a discrete-time risk sensitive portfolio optimization over a long time horizon with proportional transaction costs. We show that within the log-return i.i.d. framework the solution to a suitable Bellman equation…
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…
American options in a multi-asset market model with proportional transaction costs are studied in the case when the holder of an option is able to exercise it gradually at a so-called mixed (randomised) stopping time. The introduction of…
We consider a new approach to portfolio selection in presence of transaction costs which allows to map the problem into one without costs. The proposed approach connects all the quantities of interest to exit times and probabilities to…
We revisit optimal execution of an active portfolio in the presence of slippage (aka linear, proportional, or absolute-value) costs. Market efficiency implies a close balance between active alphas and trading costs, so even small changes to…
This paper investigates the so-called leakage effect of trading strategies generated functionally from rank-dependent portfolio generating functions. This effect measures the loss in wealth of trading strategies due to renewing the…
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…
The aim of this paper is to investigate the impact of rebalancing frequency and transaction costs on the log-optimal portfolio, which is a portfolio that maximizes the expected logarithmic growth rate of an investor's wealth. We prove that…
The family of admissible positions in a transaction costs model is a random closed set, which is convex in case of proportional transaction costs. However, the convexity fails, e.g. in case of fixed transaction costs or when only a finite…
We develop a framework for stochastic portfolio theory (SPT), which incorporates modern nonlinear price impact and impact decay models. Our main result is the derivation of the celebrated master formula for additive functional generation of…
We present a simulation-and-regression method for solving dynamic portfolio allocation problems in the presence of general transaction costs, liquidity costs and market impacts. This method extends the classical least squares Monte Carlo…
We examine strategically incorporating broad stock market leveraged exchange-traded funds (LETFs) into investment portfolios. We demonstrate that easily understandable and implementable strategies can enhance the risk-return profile of a…
The present article explores the application of randomized control techniques in empirical asset pricing and performance evaluation. It introduces geometric random walks, a class of Markov chain Monte Carlo methods, to construct flexible…