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Simple Bounds for Transaction Costs

Bouchard, Bruno; Muhle-Karbe, Johannes (2018), Simple Bounds for Transaction Costs. https://basepub.dauphine.fr/handle/123456789/17927

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simplebounds.pdf (346.6Kb)
Type
Document de travail / Working paper
Date
2018
Series title
Cahier de recherche CEREMADE, Université Paris Dauphine-PSL
Published in
Paris
Pages
14
Metadata
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Author(s)
Bouchard, Bruno
Muhle-Karbe, Johannes
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.
Subjects / Keywords
Transaction costs; Utility maximization; Asymptotic analysis
JEL
G11 - Portfolio Choice; Investment Decisions
C61 - Optimization Techniques; Programming Models; Dynamic Analysis

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