Asymptotic analysis for optimal investment and consumption with transaction costs with two futures contracts
by Bichuch, Maxim, Ph.D., CARNEGIE MELLON UNIVERSITY, 2010, 101 pages; 3428741

Abstract:

We consider an agent who seeks to optimally invest and consume in the presence of proportional transaction costs. The agent can invest in two types of futures contracts, modeled as two correlated arithmetic Brownian motions, and in a money market account with constant rate of interest. She may also consume and get utility U(c) [special characters omitted], c ≥ 0, where p ∈ (0, 1) and c is the rate of consumption. The agent can control the rate of consumption and influence the evolution of wealth by controlling the number of futures contracts held. Proportional transaction costs λ i = αiλ are charged for every trade in futures contracts of type i, i = 1, 2. All consumption is done from the money market account. The agent wishes to maximize the expected discounted integral over [0, ∞) of the utility of consumption. We compute an asymptotic expansion of the value function in powers of λ1/3.

 
AdviserSteven Shreve
SchoolCARNEGIE MELLON UNIVERSITY
SourceDAI/B 71-11, p. , Oct 2010
Source TypeDissertation
SubjectsApplied mathematics; Finance
Publication Number3428741
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