Simple Bounds for Utility Maximization with Small Transaction Costs
Portfolio Management
2021-03-23 v2 Optimization and Control
Trading and Market Microstructure
Abstract
Using elementary arguments, we show how to derive -error bounds for the approximation of frictionless wealth process in markets with proportional transaction costs. For utilities with bounded risk aversion, these estimates yield lower bounds for the frictional value function, which pave the way for its asymptotic analysis using stability results for viscosity solutions. Using tools from Malliavin calculus, we also derive simple sufficient conditions for the regularity of frictionless optimal trading strategies, the second main ingredient for the asymptotic analysis of small transaction costs.
Keywords
Cite
@article{arxiv.1802.06120,
title = {Simple Bounds for Utility Maximization with Small Transaction Costs},
author = {Bruno Bouchard and Johannes Muhle-Karbe},
journal= {arXiv preprint arXiv:1802.06120},
year = {2021}
}
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15 pages