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http://bura.brunel.ac.uk/handle/2438/3781
Title: | Finite Horizon Portfolio Selection |
Authors: | Monoyios, M |
Issue Date: | 2001 |
Publisher: | Brunel University |
Citation: | Economics and Finance Working papers, Brunel University, 01-05 |
Abstract: | We study the problem of maximising expected utility of terminal wealth over a nite horizon, with one risky and one riskless asset available, and with trades in the risky asset subject to proportional transaction costs. In a discrete time setting, using a utility function with hyperbolic risk aversion, we prove that the optimal trading strategy is characterised by a function of time (t), which represents the ratio of wealth held in the risky asset to that held in the riskless asset. There is a time varying no transaction region with boundaries b(t) < s(t), such that the portfo- lio is only rebalanced when (t) is outside this region. The results are consistent with similar studies of the in nite horizon problem with in- termediate consumption, where the no transaction region has a similar, but time independent, characterisation. We solve the problem numerically and compute the boundaries of the no transaction region for typical model parameters. We show how the results ... |
Description: | http://www.brunel.ac.uk/about/acad/sssl/ssslresearch/efwps##2001 |
URI: | http://bura.brunel.ac.uk/handle/2438/3781 |
Appears in Collections: | Dept of Economics and Finance Research Papers |
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