Portfolio Optimization under Small Transaction Costs : a Convex Duality Approach

@inproceedings{Kallsen2013PortfolioOU,
  title={Portfolio Optimization under Small Transaction Costs : a Convex Duality Approach},
  author={Jan Kallsen and Shen Li},
  year={2013}
}
We consider an investor with constant absolute risk aversion who trades a risky asset with general Itô dynamics, in the presence of small proportional transaction costs. Kallsen and Muhle-Karbe [13] formally derived the leading-order optimal trading policy and the associated welfare impact of transaction costs. In the present paper, we carry out a convex duality approach facilitated by the concept of shadow price processes in order to verify the main results of [13] under well-defined… CONTINUE READING

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