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Multi-asset portfolio selection problem with transaction costs

✍ Scribed by Marianne Akian; Jose Luis Menaldi; Agnès Sulem

Publisher
Elsevier Science
Year
1995
Tongue
English
Weight
469 KB
Volume
38
Category
Article
ISSN
0378-4754

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✦ Synopsis

This paper considers the optimal consumption and investment policy for an investor who has available one bank account paying a fixed interest rate r and n risky assets whose prices are log-normal diffusions. We suppose that transactions between the assets incur a cost proportional to the size of the transaction. The problem is to maximize the total utility of consumption. Dynamic Programming leads to a Variational Inequality for the value function which is solved by using a numerical algorithm based on policies iterations and multigrid methods. Numerical results are displayed for n = 1 and n = 2.

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