2022/01/08 by Marcin Pitera, Pitera, Marcin, Łukasz Stettner +1 · 1 citation
Decision Sciences · Economics, Econometrics and Finance · Mathematics · #49N60 #91G10 #91G80 #93E20 #Economic theories and models #FOS: Economics and business #FOS: Mathematics #Mathematical Finance (q-fin.MF) #Optimization and Control (math.OC) #Portfolio Management (q-fin.PM) #Risk Management (q-fin.RM) #Risk and Portfolio Optimization #Stochastic processes and financial applications #math.OC #msc:49N60 #msc:91G10 #msc:91G80 #msc:93E20 #q-fin.MF #q-fin.PM #q-fin.RM
paper · pdf · doi:10.48550/arxiv.2201.02828
arxiv created 2022/01/08 · openalex publication_date 2022/01/08 · arxiv updated 2022/01/11 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
In this paper we consider a discrete-time risk sensitive portfolio optimization over a long time horizon with proportional transaction costs. We show that within the log-return i.i.d. framework the solution to a suitable Bellman equation exists under minimal assumptions and can be used to characterize the optimal strategies for both risk-averse and risk-seeking cases. Moreover, using numerical examples, we show how a Bellman equation analysis can be used to construct or refine optimal trading strategies in the presence of transaction costs.