Volatility-induced financial growth

We show that the volatility of a price process, which is usually regarded as an impediment to financial growth, can serve as an endogenous factor in its acceleration.Volatility, Constant proportions strategies, Financial markets, Investment, Exponential growth, Transaction costs,

Dynamic portfolio optimization with transaction costs and state-dependent drift. Working paper

Abstract The problem of dynamic portfolio choice with transaction costs is often addressed by constructing a Markov Chain approximation of the continuous time price processes. Using this approximation, we present an efficient nu-$ The authors are grateful to the two anonymous reviewers and the editor, Professor Immanuel Bomze, for their helpful comments and advice. Preprint submitted to European Journal of Operational Research December 17, 2014 merical method to determine optimal portfolio strategies under time-and state-dependent drift and proportional transaction costs. This scenario arises when investors have behavioral biases or the actual drift is unknown and needs to be estimated. Our numerical method solves dynamic optimal portfolio problems with an exponential utility function for time-horizons of up to 40 years. It is applied to measure the value of information and the loss from transaction costs using the indifference principle