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Investment strategies in the long run with proportional transaction costs and HARA utility function

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Dostal, Petr

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Abstract We consider an agent who invests in a stock and a money market in order to maximize the asymptotic behaviour of expected utility of the portfolio market price in the presence of proportional transaction costs. The assumption that the portfolio market price is a geometric Brownian motion and the restriction to utility function with hyperbolic absolute risk aversion (HARA) enable us to evaluate interval investment strategies. It is shown that the optimal interval strategy is also optimal among a wide family of strategies and that it is optimal also in a time changed model in case of logarithmic utility.
Classification Financial Planning, Accountancy; Economic Statistics, Econometrics, Business Informatics
Method theory application
Free Keywords Portfolio choice; Utility functions; Trading strategies; Portfolio optimization; Transaction costs
Document language English
Publication Year 2009
Page/Pages p. 231-242
Journal Quantitative Finance, 9 (2009) 2
Status Postprint; peer reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)