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A unified approach to portfolio optimization with linear transaction costs

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Abstract

In this paper we study the continuous time optimal portfolio selection problem for an investor with a finite horizon who maximizes expected utility of terminal wealth and faces transaction costs in the capital market. It is well known that, depending on a particular structure of transaction costs, such a problem is formulated and solved within either stochastic singular control or stochastic impulse control framework. In this paper we propose a unified framework, which generalizes the contemporary approaches and is capable to deal with any problem where transaction costs are a linear/piecewise-linear function of the volume of trade. We also discuss some methods for solving numerically the problem within our unified framework.

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Authors and Affiliations

  1. Bodø Graduate School of Business, 8049, Bodø, Norway

    Valeri I. Zakamouline

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  1. Valeri I. Zakamouline
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Correspondence to Valeri I. Zakamouline.

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Zakamouline, V.I. A unified approach to portfolio optimization with linear transaction costs. Math Meth Oper Res 62, 319–343 (2005). https://doi.org/10.1007/s00186-005-0005-9

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  • DOI: https://doi.org/10.1007/s00186-005-0005-9

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