Optimal portfolio in the presence of transaction costs and convex risk measure

Journal article

Authors / Editors

Lungu, Edward

Research Areas

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Publication Details

Author list: Doctor O, Offen ER, Lungu EM

Place: SINGAPORE

Publication year: 2017

Journal: INTERNATIONAL JOURNAL OF FINANCIAL ENGINEERING (2424-7863)

Journal acronym: INT J FINANC ENG

Volume number: 4

Issue number: 4

Number of pages: 15

ISSN: 2424-7863

eISSN: 2424-7944

Languages: English-Great Britain (EN-GB)

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Abstract

We analyze the optimal portfolio selection problem of maximizing the utility of an agent who invests in a stock and a money market account in the presence of transaction costs. The stock price follows a geometric process. The preference of the investor is assumed to follow the constant relative risk aversion (CRRA). We further investigate the risk minimizing portfolio through a zero-sum stochastic differential game (SDG). To solve this two-player SDG we use the Hamilton-Jacobi-Bellman-Isaacs (HJBI) for general zero-sum SDG in a jump setting.

Keywords

Convex risk measure, HJBI equation, portfolio optimization, stochastic control, utility functions (CRRA)

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