Portfolio selection in discrete time with transaction costs and power utility function: a perturbation analysis

2017 ◽  
Vol 24 (2) ◽  
pp. 77-111
Author(s):  
Gary Quek ◽  
Colin Atkinson
Keyword(s):  
Transaction Costs ◽  
Utility Function ◽  
Portfolio Selection ◽  
Discrete Time ◽  
Perturbation Analysis ◽  
Power Utility

Portfolio Selection with Transaction Costs and Jump-Diffusion Asset Dynamics I: A Numerical Solution

2016 ◽  
Vol 06 (04) ◽  
pp. 1650018 ◽  
Author(s):  
Michal Czerwonko ◽  
Stylianos Perrakis
Keyword(s):  
Diffusion Process ◽  
Transaction Costs ◽  
Portfolio Selection ◽  
Discrete Time ◽  
Continuous Time ◽  
Jump Diffusion ◽  
Numerical Approach ◽  
Proportional Transaction Costs ◽  
Asset Portfolio ◽  
Time Formulation

We derive allocation rules under isoelastic utility for a mixed jump-diffusion process in a two-asset portfolio selection problem with finite horizon in the presence of proportional transaction costs. We adopt a discrete-time formulation, let the number of periods go to infinity, and show that it converges efficiently to the continuous-time solution for the cases where this solution is known. We then apply this discretization to derive numerically the boundaries of the region of no transactions. Our discrete-time numerical approach outperforms alternative continuous-time approximations of the problem.

scholarly journals L\'{e}vy Process, Proportional Transaction Costs and Foreign Exchange

2017 ◽  
Vol 9 (5) ◽  
pp. 133
Author(s):  
Obonye Doctor ◽  
Elias R. Offen ◽  
Edward M. Lungu
Keyword(s):  
Exchange Rate ◽  
Transaction Costs ◽  
Utility Function ◽  
Transaction Cost ◽  
Portfolio Selection ◽  
Foreign Exchange ◽  
Stock Price ◽  
Foreign Exchange Rate ◽  
Proportional Transaction Costs ◽  
Optimal Portfolio Selection

We analyse optimal portfolio selection problem of maximizing the utility of an agent who invests in a stock and money market account in the presence of proportional transaction cost $\lambda>0$ and foreign exchange rate. The stock price follows a (generalized) Geometric It\^{o}-L\'{e}vy process. The utility function is $U(c)={c^{p}}/{p}$ for all $c\geq0$, $p<1$, $p\neq0$.

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