Simple Bounds for Transaction Costs
Bouchard, Bruno; Muhle-Karbe, Johannes (2018), Simple Bounds for Transaction Costs. https://basepub.dauphine.fr/handle/123456789/17927
TypeDocument de travail / Working paper
Series titleCahier de recherche CEREMADE, Université Paris Dauphine-PSL
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Abstract (EN)Using elementary arguments, we derive Lp-error bounds for the approximation of frictionless wealth process in markets with proportional transaction costs. For utilities with bounded risk aversion, these estimates yield lower bounds for the frictional value function, which paves the way for its asymptotic analysis using stability results for viscosity solutions. Using tools from Malliavin calculus, we also derive simple sufficient conditions for the regularity of frictionless optimal trading strategies, the second main ingredient for the asymptotic analysis of small transaction costs.
Subjects / KeywordsTransaction costs; Utility maximization; Asymptotic analysis
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