Optimal investment in the foreign exchange market with proportional transaction costs
AbstractWe consider an investor in the foreign exchange market who can trade in two currencies, domestic and foreign. The investor seeks to optimize the expected mark-to-market value of the portfolio while aiming for a certain target proportion of the holdings in foreign currency compared with total wealth. This target proportion is exogenously given and can be thought of as a constraint imposed by risk management. The exchange rate process is modeled as a geometric Brownian motion. Proportional transaction costs are charged. We present a numerical algorithm that solves the resulting free boundary problem.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Quantitative Finance.
Volume (Year): 11 (2010)
Issue (Month): 4 ()
Contact details of provider:
Web page: http://www.tandfonline.com/RQUF20
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Lu, Jin-Ray & Chan, Chih-Ming & Wen, Mei-Hui, 2012. "Which demands affect optimal international portfolio choices?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(5), pages 1292-1306.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).
If references are entirely missing, you can add them using this form.