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Unified Asymptotics for Investment Under Illiquidity: Transaction Costs and Search Frictions

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  • Tae Ung Gang
  • Jin Hyuk Choi

Abstract

This paper investigates the optimal investment problem in a market with two types of illiquidity: transaction costs and search frictions. We analyze a power‐utility maximization problem where an investor encounters proportional transaction costs and trades only when a Poisson process triggers trading opportunities. We show that the optimal trading strategy is described by a no‐trade region. We introduce a novel asymptotic framework applicable when both transaction costs and search frictions are small. Using this framework, we derive explicit asymptotics for the no‐trade region and the value function along a specific parametric curve. This approach unifies existing asymptotic results for models dealing exclusively with either transaction costs or search frictions.

Suggested Citation

  • Tae Ung Gang & Jin Hyuk Choi, 2026. "Unified Asymptotics for Investment Under Illiquidity: Transaction Costs and Search Frictions," Mathematical Finance, Wiley Blackwell, vol. 36(1), pages 67-98, January.
    • Handle: RePEc:bla:mathfi:v:36:y:2026:i:1:p:67-98
    DOI: 10.1111/mafi.70001
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