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- Title
Asymptotic analysis for optimal investment and consumption with transaction costs.
- Authors
Janecek, Karel; Shreve, Steven E.
- Abstract
We consider an agent who invests in a stock and a money market and consumes in order to maximize the utility of consumption over an infinite planning horizon in the presence of a proportional transaction cost λ > 0. The utility function is of the form U(c) = c1-p /(1 - p) for p > 0, p ≠ 1. We provide a heuristic and a rigorous derivation of the asymptotic expansion of the value function in powers of λ1/3 , and we also obtain asymptotic results on the boundary of the “no-trade” region.
- Subjects
CONSUMPTION (Economics); TRANSACTION costs; COMMODITY exchanges; ASYMPTOTIC expansions; FINANCIAL markets; COMPUTER programming
- Publication
Finance & Stochastics, 2004, Vol 8, Issue 2, p181
- ISSN
0949-2984
- Publication type
Article
- DOI
10.1007/s00780-003-0113-4