Portfolio selection with small transaction costs and binding portfolio constraints
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Publication:2873124
DOI10.1137/120885036zbMATH Open1296.91253arXiv1205.4588OpenAlexW2049869571MaRDI QIDQ2873124FDOQ2873124
Authors: Johannes Muhle-Karbe, Ren Liu 
Publication date: 23 January 2014
Published in: SIAM Journal on Financial Mathematics (Search for Journal in Brave)
Abstract: An investor with constant relative risk aversion and an infinite planning horizon trades a risky and a safe asset with constant investment opportunities, in the presence of small transaction costs and a binding exogenous portfolio constraint. We explicitly derive the optimal trading policy, its welfare, and implied trading volume. As an application, we study the problem of selecting a prime broker among alternatives with different lending rates and margin requirements. Moreover, we discuss how changing regulatory constraints affect the deposit rates offered for illiquid loans.
Full work available at URL: https://arxiv.org/abs/1205.4588
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