Simple Bounds for Transaction Costs

Bouchard, Bruno; Muhle-Karbe, Johannes

Bouchard, Bruno; Muhle-Karbe, Johannes (2018), Simple Bounds for Transaction Costs. https://basepub.dauphine.fr/handle/123456789/17927

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simplebounds.pdf (346.6Kb)

Type

Document de travail / Working paper

Date

2018

Titre de la collection

Cahier de recherche CEREMADE, Université Paris Dauphine-PSL

Ville d’édition

Paris

Métadonnées

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Auteur(s)

Bouchard, Bruno
Muhle-Karbe, Johannes

Résumé (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.

Mots-clés

Transaction costs; Utility maximization; Asymptotic analysis

JEL

G11 - Portfolio Choice; Investment Decisions
C61 - Optimization Techniques; Programming Models; Dynamic Analysis