Optimal consumption and investment with fixed and proportional transaction costs
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Publication:5266527
constrained viscosity solutiontransaction costsvalue functionnumerical simulationsfixed costssub-solutionsuper-solutionMerton problemdynamic programming equation (DPE)
Portfolio theory (91G10) Dynamic programming in optimal control and differential games (49L20) Viscosity solutions to Hamilton-Jacobi equations in optimal control and differential games (49L25) Discrete approximations in optimal control (49M25) Existence theories for free problems in two or more independent variables (49J10)
Abstract: The classical optimal investment and consumption problem with infinite horizon is studied in the presence of transaction costs. Both proportional and fixed costs as well as general utility functions are considered. Weak dynamic programming is proved in the general setting and a comparison result for possibly discontinuous viscosity solutions of the dynamic programming equation is provided. Detailed numerical experiments illustrate several properties of the optimal investment strategies.
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