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Optimal impulse control of a portfolio with a fixed transaction cost

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  • Stefano Baccarin
  • Daniele Marazzina

Abstract

The aim of this work is to investigate a portfolio optimization problem in presence of fixed transaction costs. We consider an economy with two assets: one risky, modeled by a geometric Brownian motion, and one risk-free which grows at a certain fixed rate. The agent is fully described by his/her utility function and the objective is to maximize the expected utility from the liquidation of wealth at a terminal date. We deal with different forms of utility functions (power, logarithmic and exponential utility), describing in each case how the fixed transaction costs influence the agent’s behavior. We show when it is optimal to recalibrate his/her portfolio and which are the best adjusted portfolios. We also analyze how the optimal strategy is influenced by the risk-aversion, as well as other model parameters. Copyright Springer-Verlag Berlin Heidelberg 2014

Suggested Citation

  • Stefano Baccarin & Daniele Marazzina, 2014. "Optimal impulse control of a portfolio with a fixed transaction cost," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 22(2), pages 355-372, June.
    • Handle: RePEc:spr:cejnor:v:22:y:2014:i:2:p:355-372
    DOI: 10.1007/s10100-013-0304-9
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    Cited by:

    1. Phong Luu & Jingzhi Tie & Qing Zhang, 2018. "A Threshold Type Policy for Trading a Mean-Reverting Asset with Fixed Transaction Costs," Risks, MDPI, vol. 6(4), pages 1-15, September.
    2. Stefania Corsaro & Valentina De Simone & Zelda Marino, 2021. "Fused Lasso approach in portfolio selection," Annals of Operations Research, Springer, vol. 299(1), pages 47-59, April.
    3. Avanzi, Benjamin & Lau, Hayden & Wong, Bernard, 2021. "On the optimality of joint periodic and extraordinary dividend strategies," European Journal of Operational Research, Elsevier, vol. 295(3), pages 1189-1210.

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