Futures trading with transaction costs (Q1928878)

The authors consider the risky asset to be a futures price process modeled as an arithmetic Brownian motion. A probabilistic argument is developed to identify the loss in value when a proportional transaction cost is introduced. The paper also balances the marginal costs of the two effects caused by two sources of this loss: the first one is due to displacement (that arises because one cannot maintain the optimal portfolio of the zero-transaction-cost problem), and the second one due to transaction (when one adjusts the portfolio).