Growth-Optimal Strategies with Quadratic Friction Over Finite-Time Investment Horizons

Details Growth-Optimal Strategies with Quadratic Friction Over Finite-Time Investment Horizons Growth-Optimal Strategies with Quadratic Friction Over Finite-Time Investment Horizons

2002-11-03

arxiv.org/abs/cond-mat/0211044v1

IJTAF Vol. 7, No. 5 (2004), 645-657

Physics

Condensed Matter

Statistical Mechanics

13 pages in pdf format, 2 figures

Scientific paper

10.1142/S0219024904002578

We investigate the growth optimal strategy over a finite time horizon for a stock and bond portfolio in an analytically solvable multiplicative Markovian market model. We show that the optimal strategy consists in holding the amount of capital invested in stocks within an interval around an ideal optimal investment. The size of the holding interval is determined by the intensity of the transaction costs and the time horizon.

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