Growth-optimal portfolios under transaction costs

Details Growth-optimal portfolios under transaction costs Growth-optimal portfolios under transaction costs

2007-07-21

arxiv.org/abs/0707.3198v1

Economy

Quantitative Finance

Portfolio Management

32 pages

Scientific paper

This paper studies a portfolio optimization problem in a discrete-time Markovian model of a financial market, in which asset price dynamics depend on an external process of economic factors. There are transaction costs with a structure that covers, in particular, the case of fixed plus proportional costs. We prove that there exists a self-financing trading strategy maximizing the average growth rate of the portfolio wealth. We show that this strategy has a Markovian form. Our result is obtained by large deviations estimates on empirical measures of the price process and by a generalization of the vanishing discount method to discontinuous transition operators.

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