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Title: Stochastic optimal control for financial portfolio with transaction costs
Keywords: stochastic optimal control, Hamilton-Jacobi-Bellman, non-singular control, transaction costs
Issue Date: 3-Nov-2006
Citation: CHUONG PIERRE (2006-11-03). Stochastic optimal control for financial portfolio with transaction costs. ScholarBank@NUS Repository.
Abstract: In this thesis, a stochastic optimal control problem is formulated and solved for an investment and consumption model that includes a bond and stocks with transactions costs. In contrast to earlier results which considered linear transaction costs and obtained a non-singular feedback controls, we propose to use a quadratic transaction cost function which takes account of the liquidity of the bond and the stocks, as well as enables us to derive non-singular feedback optimal policies. Furthermore, compared with existing results we can obtain the optimal transaction rates and take the impact of liquidity into account. Our numerical results quantify the effect of the transaction costs on the optimal investment-consumption policies. We found some similarities with the previous case of the linear transaction cost and no transaction, which can corroborate our new model.
Appears in Collections:Master's Theses (Open)

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