Optimal portfolio selection with transaction costs in compound binomial model
by Fang Jin; Hui Ou
International Journal of Applied Decision Sciences (IJADS), Vol. 15, No. 1, 2022

Abstract: Investors consider investing in an investment market including a risk-free asset plus a risky asset to get maximum profit. At the same time, the insurer has a proportional transaction cost every time they invest in risky assets in an actual situation. In this paper a compound binomial model with investment costs as well as considering proportion investment costs was studied. We want to get the optimal investment strategy to maximise the expected utility of terminal wealth in the financial market. In order to solve this problem, we use the analytical method and construct the no-transaction region at time t to help us solve the problem. Finally, the expressions of the optimal investment strategy and the value function are derived, respectively. In addition, on the basis of this paper, we can consider introducing other influencing factors, such as: random time exit, Markovian environmental impact and so on.

Online publication date: Thu, 13-Jan-2022

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