Growth-optimal portfolios under transaction costs
Volume 35 / 2008
Applicationes Mathematicae 35 (2008), 1-31
MSC: Primary 91B28; Secondary 93E20.
DOI: 10.4064/am35-1-1
Abstract
This paper studies a portfolio optimization problem in a discrete-time Markovian model of a financial market, in which asset price dynamics depends on an external process of economic factors. There are transaction costs with a structure that covers, in particular, the case of fixed plus proportional costs. We prove that there exists a self-financing trading strategy maximizing the average growth rate of the portfolio wealth. We show that this strategy has a Markovian form. Our result is obtained by large deviations estimates on empirical measures of the price process and by a generalization of the vanishing discount method to discontinuous transition operators.
