Asymptotics for Fixed Transaction Costs
An investor with constant relative risk aversion trades a safe and several risky assets with constant investment opportunities. For a small fixed transaction cost, levied on each trade regardless of its size, we explicitly determine the leading-order corrections to the frictionless value function and optimal policy.
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- Anthony W. Lynch & Sinan Tan, 2011. "Explaining the Magnitude of Liquidity Premia: The Roles of Return Predictability, Wealth Shocks, and State‐Dependent Transaction Costs," Journal of Finance, American Finance Association, vol. 66(4), pages 1329-1368, 08.
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