Unified Asymptotics For Investment Under Illiquidity: Transaction Costs And Search Frictions

2024/07/18 by Tae Ung Gang, Gang, Tae Ung, Jin Hyuk Choi +1
Economics, Econometrics and Finance · #91G15 #Economic theories and models #FOS: Economics and business #Mathematical Finance (q-fin.MF)

paper · pdf · doi:10.48550/arxiv.2407.13547

openalex publication_date 2024/07/18 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28

Abstract

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.

Related

• Optimal investment in illiquid market with search frictions and transaction costs
• Simple Bounds for Utility Maximization with Small Transaction Costs
• Optimal Investment with Transaction Costs and Stochastic Volatility
• Asymptotic Analysis for Optimal Investment in Finite Time with\n Transaction Costs
• The General Structure of Optimal Investment and Consumption with Small\n Transaction Costs