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Transactions costs and portfolio choice in a discrete-continuous-time setting

166 citations0/0 files storedJournal of Economic Dynamics and Control

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Stochastic processes and financial applications Financial Markets and Investment Strategies Risk and Portfolio Optimization

Abstract

This paper makes the following observation concerning a new formulation of the consumption and portfolio choice model of Merton (1971), with transaction costs. Suppose an investor observes his or her current wealth only when making a transaction, that transactions are costly, and that decisions to transact can be made at any time based on all current information. If, at each transaction, the agent is charged a fixed fraction of current portfolio value, an optimal policy exists and the optimal interval of time between transactions is fixed, independent of time and current wealth.

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References

1971Optimum consumption and portfolio rules in a continuous-time model 1986Capital Market Equilibrium with Transaction Costs 1985Option Pricing and Replication with Transactions Costs 1983Introduction to Stochastic Integration 1976Portfolio selection with transactions costs 1970Optimal Investment and Consumption Strategies Under Risk for a Class of Utility Functions 1975OPTIMAL INVESTMENT AND CONSUMPTION STRATEGIES UNDER RISK FOR A CLASS OF UTILITY FUNCTIONS11This paper was presented at the winter meeting of the Econometric Society, San Francisco, California, December, 1966.

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2020Sources of Inaction in Household Finance: Evidence from the Danish Mortgage Market 2003Liquidity shocks and equilibrium liquidity premia 2011Optimal Price Setting With Observation and Menu Costs 1999Equilibrium interest rate and liquidity premium with transaction costs 2013Optimal Inattention to the Stock Market With Information Costs and Transactions Costs 2000Selecting Portfolios with Fixed Costs and Minimum Transaction Lots

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