Many tests of asset pricing models address only the pricing predictions - but these pricing predictions rest on portfolio choice predictions which seem obviously wrong. This paper suggests a new approach to asset pricing and portfolio choices, based on unobserved heterogeneity. This approach...

Consider an investor trading dynamically to maximize expected utility from terminal wealth. Our aim is to study the dependence between her risk aversion and the distribution of the optimal terminal payoff . Economic intuition suggests that high risk aversion leads to a rather concentrated...

We investigate the general structure of optimal investment and consumption with small proportional transaction costs. For a safe asset and a risky asset with general continuous dynamics, traded with random and time-varying but small transaction costs, we derive simple formal asymptotics for the...

An investor trades a safe and several risky assets with linear price impact to maximize expected utility from terminal wealth. In the limit for small impact costs, we explicitly determine the optimal policy and welfare, in a general Markovian setting allowing for stochastic market, cost, and...

We consider a market consisting of one safe and one risky asset, which offer constant investment opportunities. Taking into account both proportional transaction costs and linear price impact, we derive optimal rebalancing policies for representative investors with constant relative risk...

An investor with constant relative risk aversion trades a safe and several risky assets with constant investment opportunities. For a small fixed transaction cost, levied on each trade regardless of its size, we explicitly determine the leading-order corrections to the frictionless value...

We study optimal investment with multiple assets in the presence of small proportional transaction costs. Rather than computing an asymptotically optimal no-trade region, we optimize over suitable trading frequencies. We derive explicit formulas for these and the associated welfare losses due to...

This survey is an introduction to asymptotic methods for portfolio-choice problems with small transaction costs. We outline how to derive the corresponding dynamic programming equations and simplify them in the small-cost limit. This allows to obtain explicit solutions in a wide range of...