Homogenization and Asymptotics for Small Transaction Costs: The Multidimensional Case

DOI10.1080/03605302.2015.1053916MaRDI QIDQ3467559zbMATH OpenOpenAlexWikidataFDO

Authors Dylan Possamaï, Nizar Touzi, H. Mete Soner

Publication date 3 February 2016

Published in Communications in Partial Differential Equations (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1212.6275

zbMATH Keywords

asymptotic expansionshomogenizationtransaction costsviscosity solutions

Mathematics Subject Classification ID

Homogenization in context of PDEs; PDEs in media with periodic structure (35B27) Asymptotic expansions of solutions to PDEs (35C20) Viscosity solutions to PDEs (35D40) PDEs in connection with game theory, economics, social and behavioral sciences (35Q91) PDEs with randomness, stochastic partial differential equations (35R60) Viscosity solutions to Hamilton-Jacobi equations in optimal control and differential games (49L25) Applications of stochastic analysis (to PDEs, etc.) (60H30) Portfolio theory (91G10) Optimal stochastic control (93E20)

Abstract: In the context of the multi-dimensional infinite horizon optimal consumption-investment problem with proportional transaction costs, we provide the first order expansion in small transact costs. Similar to the one-dimensional derivation in our accompanying paper [42], the asymptotic expansion is expressed in terms of a singular ergodic control problem, and our arguments are based on the theory of viscosity solutions, and the techniques of homogenization which leads to a system of corrector equations. In contrast with the one-dimensional case, no explicit solution of the first corrector equation is available anymore. Finally, we provide some numerical results which illustrate the structure of the first order optimal controls.

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Cited in

(28)

• Stability of Radner equilibria with respect to small frictions
• Optimal rebalancing frequencies for multidimensional portfolios
• A multi-asset investment and consumption problem with transaction costs
• Double obstacle problems and fully nonlinear PDE with non-strictly convex gradient constraints
• Global optimal regularity for variational problems with nonsmooth non-strictly convex gradient constraints
• Machine learning approximation algorithms for high-dimensional fully nonlinear partial differential equations and second-order backward stochastic differential equations
• Asymptotics for fixed transaction costs
• Small transaction cost asymptotics and dynamic hedging
• Simple bounds for utility maximization with small transaction costs
• Optimal investment in an illiquid market with search frictions and transaction costs
• Homogenization and asymptotics for small transaction costs
• Hedging under an expected loss constraint with small transaction costs
• Pricing a contingent claim liability with transaction costs using asymptotic analysis for optimal investment
• Rebalancing with Linear and Quadratic Costs
• Investing with liquid and illiquid assets
• Optimal multi-asset trading with linear costs: a mean-field approach
• The Impact of Proportional Transaction Costs on Systematically Generated Portfolios
• Optimal consumption and investment with fixed and proportional transaction costs
• General indifference pricing with small transaction costs
• The general structure of optimal investment and consumption with small transaction costs
• Utility‐based pricing and hedging of contingent claims in Almgren‐Chriss model with temporary price impact
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• Investment-consumption optimization with transaction cost and learning about return predictability
• Optimal investment-consumption under recursive utility in regime-switching markets with transaction cost

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