Related papers: Asymptotic methods for transaction costs

Considering that a trader or a trading algorithm interacting with markets during continuous auctions can be modeled by an iterating procedure adjusting the price at which he posts orders at a given rhythm, this paper proposes a procedure…

In this paper the valuation problem of a European call option in presence of both stochastic volatility and transaction costs is considered. In the limit of small transaction costs and fast mean reversion, an asymptotic expression for the…

In a fixed time horizon, appropriately executing a large amount of a particular asset -- meaning a considerable portion of the volume traded within this frame -- is challenging. Especially for illiquid or even highly liquid but also highly…

We assume a continuous-time price impact model similar to Almgren-Chriss but with the added assumption that the price impact parameters are stochastic processes modeled as correlated scalar Markov diffusions. In this setting, we develop…

We consider the Brownian market model and the problem of expected utility maximization of terminal wealth. We, specifically, examine the problem of maximizing the utility of terminal wealth under the presence of transaction costs of a…

We study optimal liquidation strategies under partial information for a single asset within a finite time horizon. We propose a model tailored for high-frequency trading, capturing price formation driven solely by order flow through…

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…

In frictionless markets, utility maximization problems are typically solved either by stochastic control or by martingale methods. Beginning with the seminal paper of Davis and Norman [Math. Oper. Res. 15 (1990) 676--713], stochastic…

We consider the problem of the optimal trading strategy in the presence of a price predictor, linear trading costs and a quadratic risk control. The solution is known to be a band system, a policy that induces a no-trading zone in the…

In a financial market with a continuous price process and proportional transaction costs we investigate the problem of utility maximization of terminal wealth. We give sufficient conditions for the existence of a shadow price process,…

This paper studies a sequential decision problem where payoff distributions are known and where the riskiness of payoffs matters. Equivalently, it studies sequential choice from a repeated set of independent lotteries. The decision-maker is…

We revisit the problem of maximizing expected logarithmic utility from consumption over an infinite horizon in the Black-Scholes model with proportional transaction costs, as studied in the seminal paper of Davis and Norman [Math. Operation…

A standing assumption in the literature on proportional transaction costs is efficient friction. Together with robust no free lunch with vanishing risk, it rules out strategies of infinite variation, as they usually appear in frictionless…

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 the economic problem of optimal consumption and investment with power utility. We study the optimal strategy as the relative risk aversion tends to infinity or to one. The convergence of the optimal consumption is obtained for…

Sharp asymptotic lower bounds of the expected quadratic variation of discretization error in stochastic integration are given. The theory relies on inequalities for the kurtosis and skewness of a general random variable which are themselves…

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…

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…

We study the problem of the optimal execution of a large trade in the presence of nonlinear transient impact. We propose an approach based on homotopy analysis, whereby a well behaved initial strategy is continuously deformed to lower the…