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| Main Authors: | , |
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| Format: | Preprint |
| Published: |
2024
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| Subjects: | |
| Online Access: | https://arxiv.org/abs/2407.13547 |
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| _version_ | 1866913949056761856 |
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| author | Gang, Tae Ung Choi, Jin Hyuk |
| author_facet | Gang, Tae Ung Choi, Jin Hyuk |
| contents | This paper investigates the optimal investment problem in a market with two types of illiquidity: transaction costs and search frictions. Extending the framework established by arXiv:2101.09936, we analyze a power-utility maximization problem where an investor encounters proportional transaction costs and trades only when a Poisson process triggers trading opportunities. We show that the optimal trading strategy is described by a no-trade region. We introduce a novel asymptotic framework applicable when both transaction costs and search frictions are small. Using this framework, we derive explicit asymptotics for the no-trade region and the value function along a specific parametric curve. This approach unifies existing asymptotic results for models dealing exclusively with either transaction costs or search frictions. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2407_13547 |
| institution | arXiv |
| publishDate | 2024 |
| record_format | arxiv |
| spellingShingle | Unified Asymptotics For Investment Under Illiquidity: Transaction Costs And Search Frictions Gang, Tae Ung Choi, Jin Hyuk Mathematical Finance 91G15 This paper investigates the optimal investment problem in a market with two types of illiquidity: transaction costs and search frictions. Extending the framework established by arXiv:2101.09936, we analyze a power-utility maximization problem where an investor encounters proportional transaction costs and trades only when a Poisson process triggers trading opportunities. We show that the optimal trading strategy is described by a no-trade region. We introduce a novel asymptotic framework applicable when both transaction costs and search frictions are small. Using this framework, we derive explicit asymptotics for the no-trade region and the value function along a specific parametric curve. This approach unifies existing asymptotic results for models dealing exclusively with either transaction costs or search frictions. |
| title | Unified Asymptotics For Investment Under Illiquidity: Transaction Costs And Search Frictions |
| topic | Mathematical Finance 91G15 |
| url | https://arxiv.org/abs/2407.13547 |