A Primer on Portfolio Choice with Small Transaction Costs
Portfolio Management
2017-05-25 v2 Optimization and Control
Abstract
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 to obtain explicit solutions in a wide range of settings, which we illustrate for a model with mean-reverting expected returns and proportional transaction costs. For even more complex models, we present a policy iteration scheme that allows to compute the solution numerically.
Keywords
Cite
@article{arxiv.1612.01302,
title = {A Primer on Portfolio Choice with Small Transaction Costs},
author = {Johannes Muhle-Karbe and Max Reppen and H. Mete Soner},
journal= {arXiv preprint arXiv:1612.01302},
year = {2017}
}
Comments
30 pages, 5 figures