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An agent can invest in a high—yield bond and a low—yield bond, holding either long or short positions in either asset. Any movement of money between these two assets incurs a transaction cost proportional to the size of the transaction. The low—yield bond is liquid in the sense that wealth invested in this bond can be consumed directly without a transaction… (More)

- Gan-Lin Xu, Steven E. Shreve, Gan—Lin Xu
- 2015

- Ioannis Karatzas, Steven E. Shreve, +4 authors GAN-LIN XU
- 2015

The problem of maximizing the expected utility from terminal wealth is well understood in the context of a complete financial market. This paper studies the same problem in an incomplete market containing a bond and a finite number of stocks, whose prices are driven by a multidimensional Brownian motion process W. The coefficients of the bond and stock… (More)

- Gan-Lin Xu
- Math. Oper. Res.
- 1989

In a market with one stock and one bond, a risk averse agent would normally follow the principle of holding a positive amount of stock if and only if its mean rate of return is strictly larger than the interest rate of the bond We provide an example to show that in the latter case, it may be optimal not to invest in the stock. §

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