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Portfolio Choice with Transaction Costs: a User's Guide

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  • Paolo Guasoni
  • Johannes Muhle-Karbe
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    Abstract

    Recent progress in portfolio choice has made a wide class of problems involving transaction costs tractable. We review the basic approach to these problems, and outline some directions for future research.

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    File URL: http://arxiv.org/pdf/1207.7330
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    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1207.7330.

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    Date of creation: Jul 2012
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    Handle: RePEc:arx:papers:1207.7330

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    1. Attila Herczegh & Vilmos Prokaj, 2011. "Shadow price in the power utility case," Papers 1112.4385, arXiv.org, revised Aug 2014.
    2. Paolo Guasoni & Mikl\'os R\'asonyi & Walter Schachermayer, 2008. "Consistent price systems and face-lifting pricing under transaction costs," Papers 0803.4416, arXiv.org.
    3. Dumas, Bernard & Luciano, Elisa, 1991. " An Exact Solution to a Dynamic Portfolio Choice Problem under Transactions Costs," Journal of Finance, American Finance Association, American Finance Association, vol. 46(2), pages 577-95, June.
    4. Constantinides, George M, 1986. "Capital Market Equilibrium with Transaction Costs," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(4), pages 842-62, August.
    5. Kim, Tong Suk & Omberg, Edward, 1996. "Dynamic Nonmyopic Portfolio Behavior," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 9(1), pages 141-61.
    6. H. Mete Soner & Nizar Touzi, 2012. "Homogenization and asymptotics for small transaction costs," Papers 1202.6131, arXiv.org, revised Jun 2013.
    7. Magill, Michael J. P. & Constantinides, George M., 1976. "Portfolio selection with transactions costs," Journal of Economic Theory, Elsevier, Elsevier, vol. 13(2), pages 245-263, October.
    8. Karel Janeček & Steven Shreve, 2004. "Asymptotic analysis for optimal investment and consumption with transaction costs," Finance and Stochastics, Springer, Springer, vol. 8(2), pages 181-206, 05.
    9. John H. Cochrane, 2006. "The Dog That Did Not Bark: A Defense of Return Predictability," NBER Working Papers 12026, National Bureau of Economic Research, Inc.
    10. Hong Liu, 2004. "Optimal Consumption and Investment with Transaction Costs and Multiple Risky Assets," Journal of Finance, American Finance Association, American Finance Association, vol. 59(1), pages 289-338, 02.
    11. A. E. Whalley & P. Wilmott, 1997. "An Asymptotic Analysis of an Optimal Hedging Model for Option Pricing with Transaction Costs," Mathematical Finance, Wiley Blackwell, Wiley Blackwell, vol. 7(3), pages 307-324.
    12. Merton, Robert C, 1969. "Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 247-57, August.
    13. Carr, Peter, 1998. "Randomization and the American Put," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 11(3), pages 597-626.
    14. Paolo Guasoni & Scott Robertson, 2012. "Portfolios and risk premia for the long run," Papers 1203.1399, arXiv.org.
    15. Dumas, Bernard, 1991. "Super contact and related optimality conditions," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 15(4), pages 675-685, October.
    16. Jin Hyuk Choi & Mihai Sirbu & Gordan Zitkovic, 2012. "Shadow prices and well-posedness in the problem of optimal investment and consumption with transaction costs," Papers 1204.0305, arXiv.org, revised Jun 2012.
    17. Jaksa Cvitanić & Ioannis Karatzas, 1996. "HEDGING AND PORTFOLIO OPTIMIZATION UNDER TRANSACTION COSTS: A MARTINGALE APPROACH-super-2," Mathematical Finance, Wiley Blackwell, Wiley Blackwell, vol. 6(2), pages 133-165.
    18. Loewenstein, Mark, 2000. "On optimal portfolio trading strategies for an investor facing transactions costs in a continuous trading market," Journal of Mathematical Economics, Elsevier, vol. 33(2), pages 209-228, March.
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    Cited by:
    1. Dmitry Rokhlin, 2013. "On the game interpretation of a shadow price process in utility maximization problems under transaction costs," Finance and Stochastics, Springer, Springer, vol. 17(4), pages 819-838, October.

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