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
Abstract
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.
| Item Type: | Article |
|---|---|
| Official URL: | http://www.tandf.co.uk/journals/rquf |
| 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 |
| Rights: | http://www.lse.ac.uk/library/rights/LSERO.htm |
| URL: | http://eprints.lse.ac.uk/36103/ |
Actions (login required)
 |
Record administration - authorised staff only |
