Much of financial theory neglects transactions costs. Perhaps the most successful implementation of it -- i.e. continuous-time portfolio choice and option pricing -- is downright inconsistent with the existence of any transactions cost at all. Nonetheless prima facie evidence from the trade is...

The presence of any friction in financial markets qualitatively changes the nature of the optimization problem faced by an investor. It requires one to either act or do nothing, an issue which, of course, does not arise in frictionless situations. The investor considered here accumulates wealth...