Optimal investment with transaction costs and stochastic volatility. I: Infinite horizon

DOI10.1137/140983859MaRDI QIDQ4596857zbMATH OpenOpenAlexFDO

Authors Maxim Bichuch, Ronnie Sircar

Publication date 11 December 2017

Published in SIAM Journal on Control and Optimization (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1401.0562

zbMATH Keywords

asymptotic analysisoptimal investmentstochastic volatilitytransaction costsutility maximization

Mathematics Subject Classification ID

Applications of stochastic analysis (to PDEs, etc.) (60H30) Portfolio theory (91G10)

Abstract: Two major financial market complexities are transaction costs and uncertain volatility, and we analyze their joint impact on the problem of portfolio optimization. When volatility is constant, the transaction costs optimal investment problem has a long history, especially in the use of asymptotic approximations when the cost is small. Under stochastic volatility, but with no transaction costs, the Merton problem under general utility functions can also be analyzed with asymptotic methods. Here, we look at the long-run growth rate problem when both complexities are present, using separation of time scales approximations. This leads to perturbation analysis of an eigenvalue problem. We find the first term in the asymptotic expansion in the time scale parameter, of the optimal long-term growth rate, and of the optimal strategy, for fixed small transaction costs.

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Cited in

(14)

• Optimal investment with transaction costs and without semimartingales
• A note on finite horizon optimal investment and consumption with transaction costs
• Should Stochastic Volatility Matter to the Cost‐Constrained Investor?
• Optimal investment with transaction costs and stochastic volatility. I: Infinite horizon
• Optimal investment with transaction costs and stochastic volatility. II: Finite horizon
• Asymptotic Analysis for Optimal Investment in Finite Time with Transaction Costs
• Optimal investment problem with complete memory on an infinite time horizon
• Performance fees with stochastic benchmark
• Multiscale asymptotic analysis for portfolio optimization under stochastic environment
• Asymptotic analysis of long‐term investment with two illiquid and correlated assets
• Optimal consumption, investment and life-insurance purchase under a stochastically fluctuating economy
• A particle-mesh operator splitting framework for American option pricing under stochastic volatility
• Asymptotic expansions of evolution equations with fast volatility
• Optimal investment-consumption under recursive utility in regime-switching markets with transaction cost

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