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...

We revisit the problem of maximizing expected utility of terminal wealth in a Black-Scholes market with proportional transaction costs. While it is known that the value function of this problem is the unique viscosity solution of the HJB equation and that the HJB equation admits a classical...

We study the impact of parameter uncertainty on the expected utility of a multiperiod investor subject to quadratic transaction costs. We characterize the utility loss associated with ignoring parameter uncertainty, and show that it is equal to the product between the single-period utility loss...

We examine the interplay between event risk, transaction costs and predictability on the dynamic asset allocation of an investor with discrete trading opportunities. The model is calibrated to the U.S. stock market and a Gauss-Hermite quadrature approach is used to solve the investor's dynamic...

We derive allocation rules under isoelastic utility for a mixed jump-diffusion process in a two-asset portfolio selection problem with finite horizon in the presence of proportional transaction costs; we allow cash dividends on the risky asset. The allocation shifts toward the riskless asset...

The effective transaction cost rates (TCRs) facing large institutional investors often depend on their trading speeds. We propose a continuous time work-horse model to study optimal trading strategies with speed-dependent TCRs. Unlike the existing literature, our model allows the TCRs to be a...

A risk-averse agent hedges her exposure to a non-tradable risk factor U using a correlated traded asset S and accounts for the impact of her trades on both factors. The effect of the agent's trades on U is referred to as cross-impact. By solving the agent's stochastic control problem, we obtain...

Taking transaction costs into account in a mean-variance portfolio optimization in FX markets significantly improves the after cost Sharpe ratio out-of-sample. The optimization reduces trading costs and turnover, whereas the before cost performance remains unchanged. Rules-of-thumb to reduce...