English, Article edition: OPTIMAL PORTFOLIO SELECTION STRATEGIES IN THE PRESENCE OF TRANSACTION COSTS QIANG MENG; ANANDA WEERASINGHE

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Bookmark: http://trove.nla.gov.au/version/82893
Physical Description
  • article
Language
  • English

Edition details

Title
  • OPTIMAL PORTFOLIO SELECTION STRATEGIES IN THE PRESENCE OF TRANSACTION COSTS
Author
  • QIANG MENG
  • ANANDA WEERASINGHE
Physical Description
  • article
Notes
  • We consider an investor who has available a bank account (risk free asset) and a stock (risky asset). It is assumed that the interest rate for the risk free asset is zero and the stock price is modeled by a diffusion process. The wealth can be transferred between the two assets under a proportional transaction cost. Investor is allowed to obtain loans from the bank and also to short-sell the risky asset when necessary. The optimization problem addressed here is to maximize the probability of reaching a financial goal a before bankruptcy and to obtain an optimal portfolio selection policy. Our optimal policy is a combination of local-time processes and jumps. In the interesting case, it is determined by a non-linear switching curve on the state space. This work is a generalization of Weerasinghe [20], where this switching boundary is a vertical line segment.
  • Optimal investment, stochastic differential equations, transaction costs
  • RePEc:wsi:ijtafx:v:09:y:2006:i:04:p:619-641
Language
  • English
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