Optimal portfolio of low liquid assets with a log-utility function (Q2488509)

The author considers the classical Merton wealth problem, but the risky asset is not completely liquid. The investor has a log-utility function and trades a risky asset and the savings account with finite time horizon. Liquidity is represented by the success rate of the trade. Due to this condition the optimal strategy depends on the remaining period. The value function is obtained in an explicit form. By using the value function, the optimal strategy is studied and a procedure for its asymptotic expansion is given. The optimal strategy is analysed by numerical methods.