Affiliation:
1. Department of Finance and Risk Engineering, NYU Tandon School of Engineering, Brooklyn NY, USA
Abstract
We present an expansion for portfolio optimization in the presence of small, instantaneous, quadratic transaction costs. Specifically, the magnitude of transaction costs has a coefficient that is of the order [Formula: see text] small, which leads to the optimization problem having an asymptotically-singular Hamilton–Jacobi–Bellman equation whose solution can be expanded in powers of [Formula: see text]. In this paper, we derive explicit formulae for the first two terms of this expansion. Analysis and simulation are provided to show the behavior of this approximating solution.
Publisher
World Scientific Pub Co Pte Lt
Subject
General Economics, Econometrics and Finance,Finance
Cited by
1 articles.
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