A diffusion model for optimal portfolio selection in the presence of brokerage fees
Mathematics of Operations Research
Portfolio selection with transaction costs
Mathematics of Operations Research
Numerical methods for stochastic control problems in continuous time
Numerical methods for stochastic control problems in continuous time
Numerical Recipes in C: The Art of Scientific Computing
Numerical Recipes in C: The Art of Scientific Computing
Dynamic Hedging Under Jump Diffusion with Transaction Costs
Operations Research
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We consider the problem of dynamically hedging a fixed portfolio of assets in the presence of non-linear instruments and transaction costs, as well as constraints on feasible hedging positions. We assume an investor maximizing the expected utility of his terminal wealth over a finite holding period, and analyse the dynamic portfolio optimization problem when the trading interval is fixed. An approximate solution is obtained from a two-stage numerical procedure. The problem is first transformed into a nonlinear programming problem which utilizes simulated coefficient matrices. The nonlinear programming problem is then solved numerically using standard constrained optimization techniques.