The dual optimizer for the growth-optimal portfolio under transaction costs

Details The dual optimizer for the growth-optimal portfolio under transaction costs The dual optimizer for the growth-optimal portfolio under transaction costs

2010-05-27

arxiv.org/abs/1005.5105v2

Economy

Quantitative Finance

Portfolio Management

26 pages, 2 figures

Scientific paper

We consider the maximization of the long-term growth rate in the Black-Scholes model under proportional transaction costs as in Taksar, Klass and Assaf [Math. Oper. Res. 13, 1988]. Similarly as in Kallsen and Muhle-Karbe [Ann. Appl. Probab., 20, 2010] for optimal consumption over an infinite horizon, we tackle this problem by determining a shadow price, which is the solution of the dual problem. It can be calculated explicitly up to determining the root of a deterministic function. This in turn allows to explicitly compute fractional Taylor expansions, both for the no-trade region of the optimal strategy and for the optimal growth rate.

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