Tuesday 16th of January 2018

Multi-period Optimal Portfolio Decision with Transaction Costs and HARA Utility Function

Zhen Wang and Shuling Gao

Portfolio selection problem is one of the core research fields in modern financial management. While considering the transaction costs in the long term investment makes the portfolio selection problems more complex than there are no transaction costs. In this paper, the general multi-period investment problems with HARA utility function and proportional transaction costs are investigated. By using the dynamic programming method, the indirect utility function is defined for solving the portfolio selection problem. The optimal strategies and the boundary of the no-transaction region are obtained in the explicit form. And the procedure for solving the original portfolio selection problem is given. Numerical example shows the feasibility and effectiveness of the method provided in this paper.

Keywords: Optimal portfolio, Dynamic programming, Transaction costs, HARA utility function

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Zhen Wang
Zhen Wang lecturer received her B.A. in Applied Mathematics in 2005, the M.S. degree in Econometrics in 2008, and the Ph.D. degree in Applied Mathematics from Xidian University in 2012. She is currently with Institute of Information and System Computation Science, Beifang University of Nationalities, China. Her main research areas include Mathematical Finance, Portfolio Optimization, and Intelligent Optimization.

Shuling Gao
Shuling Gao received her M.S. degree in Applied Mathematicsfrom Shaanxi Normal University, China, in 2008. Her main interests include Intelligent Optimization, Theory and Methods of Optimization.

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