Households who wish to extract home equity through refinancing their mortgage face a hidden transaction cost. The real value of the fixed nominal mortgage payment declines over time with inflation. The change in the real value of the mortgage payments from taking on a new mortgage is positive...

A number of papers have solved for the optimal dynamic portfolio strategy when expected returns are time-varying and trading is costly, but only for agents with myopic utility. Non-myopic agents benefit from hedging against shocks to the investment opportunity set even when transaction costs are...

In this short note, we consider mean-variance optimized portfolios with transaction costs. We show that introducing quadratic transaction costs makes the optimization problem more difficult than using linear transaction costs. The reason lies in the specification of the budget constraint, which...

This paper presents an analytical solution to the dynamic portfolio selection problem, considering transaction costs and signals with different persistence properties. Our proposed optimal portfolio policy involves a smooth adjustment towards a forward-looking portfolio that is composed of a...

When returns are partially predictable and trading is costly, CARA investors track a target portfolio at a constant trading speed. The target portfolio is optimal for a frictionless market, where asset returns are scaled back to account for trading costs and volatilities are adjusted to proxy...

We consider the problem of optimal dynamic trading in the presence of predictable returns and proportional transaction costs for an investor choosing among multiple assets. The value of each security equals the expected value of holding the asset plus the value of all options to trade. We...

As in continuous time, the nontrading region (NTR) in a mean-variance model with fixed, proportional, and quadratic trading costs is a singleton only for pure quadratic costs. Utility loss from costs is approximately proportional at small cost levels, and approximately constant at large cost...

Markowitz portfolio selection is a cornerstone in finance, in academia as well as in the industry. Most academic studies either ignore transaction costs or account for them in a way that is both unrealistic and suboptimal by (i) assuming transaction costs to be constant across stocks and (ii)...