In this companion paper to “Optimal Investment with Transaction Costs and Stochastic Volatility Part I: Infinite Horizon”, "http://ssrn.com/abstract=2374150" http://ssrn.com/abstract=2374150, we give an accuracy proof for the finite time optimal investment and consumption problem under fast...

We present efficient partial differential equation (PDE) methods for continuous time mean-variance portfolio allocation problems when the underlying risky asset follows a jump-diffusion. The standard formulation of mean-variance optimal portfolio allocation problems, where the total wealth is...

I introduce dynamic option trading and non-linear views into the classical portfolio selection problem. The optimal dynamic option portfolio is characterized explicitly in terms of its expected sensitivities (Greeks) and the role of the mean-variance effi cient portfolio is played by the "Greek...

Transaction-cost models in continuous-time markets are considered. Given that investors decide to buy or sell at certain time instants, we study the existence of trading strategies that reach a certain final wealth level in continuous-time markets, under the assumption that transaction costs,...

The optimal portfolio of a utility-maximizing investor trading in the S&P 500 index and cash, subject to proportional transaction costs, becomes stochastically dominated when overlaid with a zero-net-cost portfolio of S&P 500 options bought at their ask and written at their bid price in most...

In 1985 Leland suggested an approach to price contingent claims under proportional transaction costs. Its main idea is to use the classical Black–Scholes formula with a suitably enlarged volatility for a periodically revised portfolio whose terminal value approximates the pay-off of the call...

We apply a two-step strategy to forecast the dynamics of the volatility surface implicit in option prices to all American-style options written on the stocks that have entered the Dow Jones Industrial Average Index between 2004 and 2016. We explore whether the implied volatilities extracted...

This paper solves the mean-variance hedging problem in Heston's model with a stochastic opportunity set moving systematically with the volatility of stock returns. We allow for correlation between stock returns and their volatility (so-called leverage effect).lt;brgt;lt;brgt;Our contribution is...

We apply the Malliavin calculus to the stochastic string framework and obtain a Clark-Ocone-like formula. This result allows us to rewrite the hedging portfolio explicitly in terms of the Malliavin derivative of the discounted payoff. We illustrate this new result with two applications. Firstly,...

We explore a multi-asset jump-diffusion pricing model, combining a systemic risk asset with several conditionally independent ordinary assets. Our approach allows for analyzing and modeling a portfolio that integrates high-activity security, such as an exchange trading fund (ETF) tracking a...