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Simple Bounds for Transaction Costs

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simplebounds.pdf (346.6Kb)
Date
2018
Publishing date
02-2018
Collection title
Cahier de recherche CEREMADE, Université Paris-Dauphine
Dewey
Probabilités et mathématiques appliquées
Sujet
Transaction costs; Utility maximization; Asymptotic analysis
JEL code
G.G1.G11; C.C6.C61
URI
https://basepub.dauphine.fr/handle/123456789/17927
Collections
  • CEREMADE : Publications
Metadata
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Author
Bouchard, Bruno
60 CEntre de REcherches en MAthématiques de la DEcision [CEREMADE]
Muhle-Karbe, Johannes
61363 University of Michigan
Type
Document de travail / Working paper
Item number of pages
14
Abstract (EN)
Using elementary arguments, we derive Lp-error bounds for the approximation of frictionless wealth process in markets with proportional transaction costs. For utilities with bounded risk aversion, these estimates yield lower bounds for the frictional value function, which paves the way for its asymptotic analysis using stability results for viscosity solutions. Using tools from Malliavin calculus, we also derive simple sufficient conditions for the regularity of frictionless optimal trading strategies, the second main ingredient for the asymptotic analysis of small transaction costs.

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