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arXiv · 1309.3479

Portfolio Optimization under Small Transaction Costs: a Convex Duality Approach

Jan Kallsen·Shen Li
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Abstract

We consider an investor with constant absolute risk aversion who trades a risky asset with general Ito dynamics, in the presence of small proportional transaction costs. Kallsen and Muhle-Karbe (2012) formally derived the leading-order optimal trading policy and the associated welfare impact of transaction costs. In the present paper, we carry out a convex duality approach facilitated by the concept of shadow price processes in order to verify the main results of Kallsen and Muhle-Karbe under well-defined regularity conditions.

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Jan Kallsen, Shen Li. 2013-09-13. Portfolio Optimization under Small Transaction Costs: a Convex Duality Approach. https://arxiv.org/abs/1309.3479

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