Portfolio Optimization under Small Transaction Costs: a Convex Duality Approach
Portfolio Management
2013-09-16 v1
Abstract
We consider an investor with constant absolute risk aversion who trades a risky asset with general Ito dynamics, in the presence of small proportional transaction costs. Kallsen and Muhle-Karbe (2012) formally derived the leading-order optimal trading policy and the associated welfare impact of transaction costs. In the present paper, we carry out a convex duality approach facilitated by the concept of shadow price processes in order to verify the main results of Kallsen and Muhle-Karbe under well-defined regularity conditions.
Keywords
Cite
@article{arxiv.1309.3479,
title = {Portfolio Optimization under Small Transaction Costs: a Convex Duality Approach},
author = {Jan Kallsen and Shen Li},
journal= {arXiv preprint arXiv:1309.3479},
year = {2013}
}