Asymptotics for Fixed Transaction Costs
Albert Altarovici, Johannes Muhle-Karbe, H. Mete Soner
TL;DR
This paper derives the leading-order effects of small fixed transaction costs on an investor's optimal trading strategy and value function in a multi-asset setting with constant investment opportunities.
Contribution
It explicitly calculates the first-order corrections to the optimal policy and value function caused by small fixed transaction costs, extending frictionless models.
Findings
Explicit formulas for leading-order corrections to value function
Characterization of optimal trading policy with fixed costs
Quantitative insights into transaction cost impacts
Abstract
An investor with constant relative risk aversion trades a safe and several risky assets with constant investment opportunities. For a small fixed transaction cost, levied on each trade regardless of its size, we explicitly determine the leading-order corrections to the frictionless value function and optimal policy.
Peer Reviews
No public reviews on file for this paper yet. If you reviewed it on a platform where reviews are public (OpenReview, ICLR, NeurIPS, ICML), you can paste yours below so the community can read it here.
Videos
No videos yet. Explain this paper in a talk, walkthrough, or lecture? Add one.