1995
DOI: 10.1111/j.1467-9965.1995.tb00071.x
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Optimal Portfolio Management With Fixed Transaction Costs

Abstract: We study optimal portfolio management policies for an investor who must pay a transaction cost equal to a fixed Traction of his portfolio value each time he trades. We focus on the infinite horizon objective function of maximizing the asymptotic growth rate, so me optimal policies we derive approximate those of an investor with logarithmic utility at a distant horizon. When investment opportunities are modeled as "m" correlated geometric Brownian motion stocks and a riskless bond, we show that the optimal poli… Show more

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Cited by 207 publications
(172 citation statements)
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“…where C N t is given by (27). The equilibrium liquidity premium coefficient K is then related to t by (31) in Proposition 2.…”
Section: Equilibrium With Small Transactions Costsmentioning
confidence: 99%
See 1 more Smart Citation
“…where C N t is given by (27). The equilibrium liquidity premium coefficient K is then related to t by (31) in Proposition 2.…”
Section: Equilibrium With Small Transactions Costsmentioning
confidence: 99%
“…Because of the law of large numbers, agents exit at a rate of l per unit of time, leaving the economy with a constant mass of agents. 6 See, for example, [12,[14][15][16]19,27,31,32]. 7 Without loss of generality, our set of agents is the unit interval.…”
Section: The Modelmentioning
confidence: 99%
“…In this section, we briefly discuss the effects of management fees (see for example Bielecki and Pliska [5] and Morton and Pliska [40]). In a market with management fees, an investor is periodically charged proportionally to his or her wealth at a fixed rate α ∈ (0, 1).…”
Section: Modeling Management Feesmentioning
confidence: 99%
“…This type of problems is widely discussed in the literature. If we take F ≡ 0 and G -a utility function, we obtain a problem of optimal portfolio selection with consumption (see [6], [8], [11]). The integral part of the reward functional appears in various banking and cash management applications (see eg.…”
Section: Introductionmentioning
confidence: 99%