Work

Portfolio Optimization under Small Transaction Costs: a Convex Duality Approach

Year: 2013

Type: preprint

Abstract: We consider an investor with constant absolute risk aversion who trades a risky asset with general Ito dynamics, in the presence of small proportional transaction costs. Kallsen and Muhle-Karbe (2012) formally derived the leading-order optimal trading policy and the associated welfare impact of transaction costs. In the present paper, we carry out a convex duality approach facilitated by the concept of shadow price processes in order to verify the main results of Kallsen and Muhle-Karbe under well-defined regularity conditions.

Source: RePEc: Research Papers in Economics

DOI: 10.48550/arxiv.1309.3479

Authors: Kallsen, Jan, Li, Shen

Institution: Christian-Albrechts-Universität zu Kiel

Language: English

Topic: Stochastic processes and financial applications

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W1580148192

Cites: 27

Cited by: 21

Related to: 10