On an Investment-Consumption Model With Transaction Costs

Authors:
Marianne Akian;Jose Luis Menaldi;Agnes Sulem
Affiliations:
-;-;-
Venue:
SIAM Journal on Control and Optimization
Year:
1996

Citing 0
Cited 4

The optimal financial decision-making with life insurance and different rates between deposit and loan

IMCAS'09 Proceedings of the 8th WSEAS international conference on Instrumentation, measurement, circuits and systems
Multigrid Techniques in Economics

Operations Research
Dynamic Portfolio Optimization with Transaction Costs: Heuristics and Dual Bounds

Management Science
Merton Problem with Taxes: Characterization, Computation, and Approximation

SIAM Journal on Financial Mathematics

Quantified Score

Hi-index	0.00

Visualization

Abstract

This paper considers the optimal consumption and investment policy for an investor who has available one bank account paying a fixed interest rate and $n$ risky assets whose prices are log-normal diffusions. We suppose that transactions between the assets incur a cost proportional to the size of the transaction. The problem is to maximize the total utility of consumption. Dynamic programming leads to a variational inequality for the value function. Existence and uniqueness of a viscosity solution are proved. The variational inequality is solved by using a numerical algorithm based on policies, iterations, and multigrid methods. Numerical results are displayed for $n=1$ and $n=2$.