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A Primer on Portfolio Choice with Small Transaction Costs

Listed author(s):
  • Johannes Muhle-Karbe
  • Max Reppen
  • H. Mete Soner
Registered author(s):

    This survey is an introduction to asymptotic methods for portfolio-choice problems with small transaction costs. We outline how to derive the corresponding dynamic programming equations and simplify them in the small-cost limit. This allows to obtain explicit solutions in a wide range of settings, which we illustrate for a model with mean-reverting expected returns and proportional transaction costs. For even more complex models, we present a policy iteration scheme that allows to compute the solution numerically.

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    File URL: http://arxiv.org/pdf/1612.01302
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    Paper provided by arXiv.org in its series Papers with number 1612.01302.

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    Date of creation: Dec 2016
    Date of revision: May 2017
    Handle: RePEc:arx:papers:1612.01302
    Contact details of provider: Web page: http://arxiv.org/

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