Title: An Exact Solution to a Dynamic Portfolio Choice Problem under Transactions Costs
Abstract: The Journal of FinanceVolume 46, Issue 2 p. 577-595 Article An Exact Solution to a Dynamic Portfolio Choice Problem under Transactions Costs BERNARD DUMAS, BERNARD DUMASSearch for more papers by this authorELISA LUCIANO, ELISA LUCIANODumas is with the Wharton School of the University of Pennsylvania, HEC School of Management, and National Bureau of Economic Research. Luciano is with the Università di Torino, Italy. Dumas gratefully acknowledges the financial support of the A. Shoemaker term chain at the Wharton School. Both authors are grateful to an anonymous referee of this Journal, to Jérôme Detemple, Sanford Grossman, Bruce Lehman, Jean-Luc Vila, participants of workshops at the NBER, Columbia University, the University of Warwick, and the University of Stockholm for helpful comments, and to Francisco Delgado for his diligent and effective research assistance. This paper has evolved from the first part of a document entitled: "Bid-ask Option Pricing under Transactions Costs" which was first presented at an International Conference held at HEC School of Management in June 1988.Search for more papers by this author BERNARD DUMAS, BERNARD DUMASSearch for more papers by this authorELISA LUCIANO, ELISA LUCIANODumas is with the Wharton School of the University of Pennsylvania, HEC School of Management, and National Bureau of Economic Research. Luciano is with the Università di Torino, Italy. Dumas gratefully acknowledges the financial support of the A. Shoemaker term chain at the Wharton School. Both authors are grateful to an anonymous referee of this Journal, to Jérôme Detemple, Sanford Grossman, Bruce Lehman, Jean-Luc Vila, participants of workshops at the NBER, Columbia University, the University of Warwick, and the University of Stockholm for helpful comments, and to Francisco Delgado for his diligent and effective research assistance. This paper has evolved from the first part of a document entitled: "Bid-ask Option Pricing under Transactions Costs" which was first presented at an International Conference held at HEC School of Management in June 1988.Search for more papers by this author First published: June 1991 https://doi.org/10.1111/j.1540-6261.1991.tb02675.xCitations: 251 Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinkedInRedditWechat ABSTRACT The presence of any friction in financial markets qualitatively changes the nature of the optimization problem faced by an investor. It requires one to either act or do nothing, an issue which, of course, does not arise in frictionless situations. The investor considered here accumulates wealth without consuming until some terminal point in time when he consumes all. His objective is to maximize the expected utility derived from that terminal consumption. We postpone the terminal point far into the future to obtain a stationary portfolio rule. The portfolio policy is in the form of two control barriers between which portfolio proportions are allowed to fluctuate. We show how to calculate them. Citing Literature Volume46, Issue2June 1991Pages 577-595 RelatedInformation
Publication Year: 1991
Publication Date: 1991-06-01
Language: en
Type: article
Indexed In: ['crossref']
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Cited By Count: 65
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