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Optimal Portfolio Choice Under Shadow Costs with Fixed Assets when Time-Horizon Is Uncertain

Author

Listed:
  • Mondher Bellalah

    (Cy Cergy Paris University
    ISC Paris Business School)

  • Detao Zhang

    (Shandong University)

  • Panpan Zhang

    (Shandong University)

Abstract

We analyze in this paper the problem of choosing the optimal portfolio for investors under uncertain exit random time. We consider the portfolio choice with fixed assets in the presence of information costs and short sales constraints. This context allows us to focus on the optimal portfolio choice with fixed assets. Investors aim to maximize the ratio between the wealth and the value of the fixed assets. We obtain the optimal portfolio choice strategy with fixed assets when the time horizon is a random exit time. Our results are new in the literature. We illustrate the main findings through some simulation results.

Suggested Citation

  • Mondher Bellalah & Detao Zhang & Panpan Zhang, 2020. "Optimal Portfolio Choice Under Shadow Costs with Fixed Assets when Time-Horizon Is Uncertain," Computational Economics, Springer;Society for Computational Economics, vol. 56(1), pages 5-20, June.
    • Handle: RePEc:kap:compec:v:56:y:2020:i:1:d:10.1007_s10614-020-09991-3
    DOI: 10.1007/s10614-020-09991-3
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    References listed on IDEAS

    as
    1. Mondher Bellalah, 1999. "Valuation of futures and commodity options with information costs," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 19(6), pages 645-664, September.
    2. Blanchet-Scalliet, Christophette & El Karoui, Nicole & Jeanblanc, Monique & Martellini, Lionel, 2008. "Optimal investment decisions when time-horizon is uncertain," Journal of Mathematical Economics, Elsevier, vol. 44(11), pages 1100-1113, December.
    3. Merton, Robert C, 1987. "A Simple Model of Capital Market Equilibrium with Incomplete Information," Journal of Finance, American Finance Association, vol. 42(3), pages 483-510, July.
    4. Wu, Chunchi & Li, Qiang & Weii, K C John, 1996. "Incomplete-Information Capital Market Equilibrium with Heterogeneous Expectations and Short Sale Restrictions," Review of Quantitative Finance and Accounting, Springer, vol. 7(2), pages 119-136, September.
    5. Bjork, Tomas, 2009. "Arbitrage Theory in Continuous Time," OUP Catalogue, Oxford University Press, edition 3, number 9780199574742.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Optimal portfolio; Asset price; Uncertain time-horizon; Dynamic programming; HJB equation;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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