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Asymptotic analysis for Merton's problem with transaction costs in power utility case
Abstract:
We revisit the optimal investment and consumption problem with proportional transaction costs. We prove that both the value function and the slopes of the lines demarcating the no-trading region are analytic functions of cube root of the transaction cost parameter. Also, we can explicitly calculate the coefficients of the fractional power series expansions of the value function and the no-trading region.
Keywords:stochastic control  utility maximization  transaction costs  shadow price  asymptotic analysis
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