Transactions costs and portfolio choice in a discrete-continuous-time setting
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Abstract
This paper makes the following observation concerning a new formulation of the consumption and portfolio choice model of Merton (1971), with transaction costs. Suppose an investor observes his or her current wealth only when making a transaction, that transactions are costly, and that decisions to transact can be made at any time based on all current information. If, at each transaction, the agent is charged a fixed fraction of current portfolio value, an optimal policy exists and the optimal interval of time between transactions is fixed, independent of time and current wealth.