Discrete-time risk sensitive portfolio optimization with proportional transaction costs
Portfolio Management
2022-01-11 v1 Optimization and Control
Mathematical Finance
Risk Management
Abstract
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 exists under minimal assumptions and can be used to characterize the optimal strategies for both risk-averse and risk-seeking cases. Moreover, using numerical examples, we show how a Bellman equation analysis can be used to construct or refine optimal trading strategies in the presence of transaction costs.
Keywords
Cite
@article{arxiv.2201.02828,
title = {Discrete-time risk sensitive portfolio optimization with proportional transaction costs},
author = {Marcin Pitera and Łukasz Stettner},
journal= {arXiv preprint arXiv:2201.02828},
year = {2022}
}