Asymptotics for Fixed Transaction Costs
37 Pages Posted: 19 Jun 2013
Date Written: June 12, 2013
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: Suggested Citation