An Exact Solution to a Portfolio Choice Problem under Transactions Costs

Details

Serval ID
serval:BIB_614564B2D88D
Type
Article: article from journal or magazin.
Collection
Publications
Title
An Exact Solution to a Portfolio Choice Problem under Transactions Costs
Journal
Journal of Finance
Author(s)
Dumas, B., Luciano, E. 
Publication state
Published
Issued date
1991
Volume
46
Number
2
Pages
577-595
Abstract
The presence of any friction in financial markets qualitatively changes the nature of the optimization problem faced by an investor. It requires one to either act or do nothing, an issue which, of course, does not arise in frictionless situations. The investor considered here accumulates wealth without consuming until some terminal point in time when he consumes all. His objective is to maximize the expected utility derived from that terminal consumption. We postpone the terminal point far into the future to obtain a stationary portfolio rule. The portfolio policy is in the form of two control barriers between which portfolio proportions are allowed to fluctuate. We show how to calculate them.
Create date
19/11/2007 10:29
Last modification date
20/08/2019 14:18
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