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On Discrete Probability Approximations for Transaction Cost Problems

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  • Nabeel Butt

    (Lahore School of Economics)

Abstract

In this paper we consider a discrete-time formulation of dynamic transaction cost problems. We examine applicability of numerical discrete probability approximation as an alternative simplistic approach to solve dynamic transaction cost problems. We provide a computational study of a lattice-based heuristic method on simple transaction cost models and highlight its many advantages. The solution of these problems provides a dynamic investor with important insights as to how the portfolio should be re-balanced when faced with transaction costs.

Suggested Citation

  • Nabeel Butt, 2019. "On Discrete Probability Approximations for Transaction Cost Problems," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 26(3), pages 365-389, September.
    • Handle: RePEc:kap:apfinm:v:26:y:2019:i:3:d:10.1007_s10690-019-09270-8
    DOI: 10.1007/s10690-019-09270-8
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