Optimal investment for retail investors | Zendy

Belak Christoph | Zendy; Mich Lukas | Zendy; Seifried Frank T. | Zendy

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Optimal investment for retail investors

Author(s) -

Belak Christoph,

Mich Lukas,

Seifried Frank T.

Publication year - 2022

Publication title -

mathematical finance

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 1.98

H-Index - 81

eISSN - 1467-9965

pISSN - 0960-1627

DOI - 10.1111/mafi.12336

Subject(s) - transaction cost , portfolio , trading strategy , variety (cybernetics) , investment (military) , bellman equation , microeconomics , economics , investment strategy , database transaction , business , financial economics , computer science , mathematical economics , profit (economics) , artificial intelligence , politics , political science , law , programming language

We study optimal portfolio decisions for a retail investor that faces a strictly positive transaction cost in a classical Black‐Scholes market. We provide a construction of optimal trading strategies and characterize the value function as the unique viscosity solution of the associated quasi‐variational inequalities. Moreover, we numerically investigate the optimal trading regions for a variety of real‐world cost structures faced by retail investors. We find that the cost structure has a strong effect on the qualitative shape of the no‐trading region and optimal strategies.

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