Asymptotic Analysis for Optimal Investment in Finite Time with Transaction Costs

Details Asymptotic Analysis for Optimal Investment in Finite Time with Transaction Costs Asymptotic Analysis for Optimal Investment in Finite Time with Transaction Costs

2011-12-12

arxiv.org/abs/1112.2749v1

Economy

Quantitative Finance

Portfolio Management

22 pages

Scientific paper

We consider an agent who invests in a stock and a money market account with the goal of maximizing the utility of his investment at the final time T in the presence of a proportional transaction cost. The utility function considered is power utility. We provide a heuristic and a rigorous derivation of the asymptotic expansion of the value function in powers of transaction cost parameter. We also obtain a "nearly optimal" strategy, whose utility asymptotically matches the leading terms in the value function.

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