Optimal investment for retail investors

Christoph Belak; Lukas Mich; Frank T. Seifried

doi:10.1111/mafi.12336

Optimal investment for retail investors

Christoph Belak
, Lukas Mich
, Frank T. Seifried

Technische Universität Berlin
University of Trier

Research output: Contribution to journal › Article › peer-review

5 Scopus citations

Abstract

We study optimal portfolio decisions for a retail investor that faces a strictly positive transaction cost in a classical Black-Scholes market. We provide a construction of optimal trading strategies and characterize the value function as the unique viscosity solution of the associated quasi-variational inequalities. Moreover, we numerically investigate the optimal trading regions for a variety of real-world cost structures faced by retail investors. We find that the cost structure has a strong effect on the qualitative shape of the no-trading region and optimal strategies.

Original language	English
Pages (from-to)	555-594
Number of pages	40
Journal	Mathematical Finance
Volume	32
Issue number	2
DOIs	https://doi.org/10.1111/mafi.12336
State	Published - Apr 2022
Externally published	Yes

Keywords

portfolio optimization
retail investor
transaction costs

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10.1111/mafi.12336

Cite this

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abstract = "We study optimal portfolio decisions for a retail investor that faces a strictly positive transaction cost in a classical Black-Scholes market. We provide a construction of optimal trading strategies and characterize the value function as the unique viscosity solution of the associated quasi-variational inequalities. Moreover, we numerically investigate the optimal trading regions for a variety of real-world cost structures faced by retail investors. We find that the cost structure has a strong effect on the qualitative shape of the no-trading region and optimal strategies.",

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AB - We study optimal portfolio decisions for a retail investor that faces a strictly positive transaction cost in a classical Black-Scholes market. We provide a construction of optimal trading strategies and characterize the value function as the unique viscosity solution of the associated quasi-variational inequalities. Moreover, we numerically investigate the optimal trading regions for a variety of real-world cost structures faced by retail investors. We find that the cost structure has a strong effect on the qualitative shape of the no-trading region and optimal strategies.

KW - portfolio optimization

KW - retail investor

KW - transaction costs

UR - https://www.scopus.com/pages/publications/85112394397

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DO - 10.1111/mafi.12336

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SN - 0960-1627

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JO - Mathematical Finance

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Optimal investment for retail investors

Abstract

Keywords

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