2023/04/16 by Yingting Miao, Qiang Zhang, Miao, Yingting +1
Economics, Econometrics and Finance · #Economic theories and models #FOS: Economics and business #Financial Markets and Investment Strategies #Portfolio Management (q-fin.PM) #Stochastic processes and financial applications
paper · pdf · doi:10.48550/arxiv.2304.07672
openalex publication_date 2023/04/16 · openalex created_date 2023/04/20 · openalex updated_date 2026/07/28
Transaction costs play a critical role in portfolio allocation and consumption decisions. We study a finite-horizon consumption--investment problem with CRRA utility under a general class of transaction cost functions. Based on dynamic programming and a singular perturbation expansion for a small cost-to-wealth ratio, we derive leading-order asymptotic formulas for the no-trade region, the four trading boundaries, the value function correction, and the optimal consumption rate. We further show how fixed, proportional, fixed-plus-proportional, and nonlinear transaction costs arise as special cases of the general framework. The results show that the leading-order no-trade region is governed by the fixed and proportional components, while the framework still accommodates nonlinear cost structures. Complementing the asymptotic analysis, we prove a verification theorem for the exact impulse-control formulation under a strictly positive fixed cost component, and characterize its limiting transitions to singular and continuous control regimes as the fixed cost vanishes.