Asymptotics for Fixed Transaction Costs

37 Pages Posted: 19 Jun 2013

See all articles by Albert Altarovici

Albert Altarovici

ETH Zurich

Johannes Muhle-Karbe

Carnegie Mellon University - Department of Mathematical Sciences

Halil Mete Soner

ETH Zürich; Swiss Finance Institute

Date Written: June 12, 2013

Abstract

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.

Keywords: fixed transaction costs, optimal investment and consumption, homogenization, viscosity solutions, asymptotic expansions

JEL Classification: G11

Suggested Citation

Altarovici, Albert and Muhle-Karbe, Johannes and Soner, Halil Mete, Asymptotics for Fixed Transaction Costs (June 12, 2013). Swiss Finance Institute Research Paper No. 13-35. Available at SSRN: https://ssrn.com/abstract=2280469 or http://dx.doi.org/10.2139/ssrn.2280469

Albert Altarovici

ETH Zurich ( email )

Rämistrasse 101
ZUE F7
Zürich, 8092
Switzerland

Johannes Muhle-Karbe

Carnegie Mellon University - Department of Mathematical Sciences ( email )

Pittsburgh, PA 15213-3890
United States

Halil Mete Soner (Contact Author)

ETH Zürich ( email )

Zürichbergstrasse 18
8092 Zurich, CH-1015
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

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