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dc.contributor.authorHobson, D
dc.contributor.authorTse, ASL
dc.contributor.authorZhu, Y
dc.date.accessioned2019-11-23T00:30:43Z
dc.date.available2019-11-23T00:30:43Z
dc.date.issued2019-04
dc.identifier.issn0960-1627
dc.identifier.urihttps://www.repository.cam.ac.uk/handle/1810/299161
dc.description.abstractIn this paper, we consider the Merton problem in a market with a single risky asset and proportional transaction costs. We give a complete solution of the problem up to the solution of a first‐crossing problem for a first‐order differential equation. We find that the characteristics of the solution (e.g., well‐posedness) can be related to some simple properties of a univariate quadratic whose coefficients are functions of the parameters of the problem. Our solution to the problem via the value function includes expressions for the boundaries of the no‐transaction wedge. Using these expressions, we prove a precise condition for when leverage occurs. One new and unexpected result is that when the solution to the Merton problem (without transaction costs) involves a leveraged position, and when transaction costs are large, the location of the boundary at which sales of the risky asset occur is independent of the transaction cost on purchases.
dc.publisherWiley
dc.rightsAll rights reserved
dc.titleOptimal consumption and investment under transaction costs
dc.typeArticle
prism.publicationNameMathematical Finance
dc.identifier.doi10.17863/CAM.46226
dcterms.dateAccepted2018-04-12
rioxxterms.versionofrecord10.1111/mafi.12187
rioxxterms.versionAM
rioxxterms.licenseref.urihttp://www.rioxx.net/licenses/all-rights-reserved
rioxxterms.licenseref.startdate2018-04-12
dc.identifier.eissn1467-9965
rioxxterms.typeJournal Article/Review
cam.issuedOnline2018-08-07
cam.orpheus.successThu Jan 30 10:35:29 GMT 2020 - Embargo updated
rioxxterms.freetoread.startdate2020-08-07


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