Veraart, Luitgard A. M. (2011) Optimal investment in the foreign exchange market with proportional transaction costs. Quantitative finance, 11 (4). pp. 631-640. ISSN 1469-7688
We consider an investor in the foreign exchange market who can trade in two currencies, domestic and foreign. The investor seeks to optimize the expected mark-to-market value of the portfolio while aiming for a certain target proportion of the holdings in foreign currency compared with total wealth. This target proportion is exogenously given and can be thought of as a constraint imposed by risk management. The exchange rate process is modeled as a geometric Brownian motion. Proportional transaction costs are charged. We present a numerical algorithm that solves the resulting free boundary problem.
|Additional Information:||© 2010 Routledge, Taylor & Francis|
|Uncontrolled Keywords:||Applied mathematical finance, consumption-portfolio choice, continuous time dynamic finance, control of stochastic systems|
|Library of Congress subject classification:||H Social Sciences > HG Finance|
|Sets:||Departments > Mathematics|
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