401-4914-12L  Optimal Portfolio Choice in Markets with Frictions

SemesterSpring Semester 2012
LecturersJ. Muhle-Karbe
Periodicitynon-recurring course
Language of instructionEnglish


AbstractIn his seminal work in the late sixties and early seventies, Robert Merton explicitly determined optimal portfolios for several classes of risk averse agents trading dynamically in frictionless financial markets.

In this lecture, we will consider extensions taking into account market frictions such as transaction costs, illiquidity, and parameter uncertainty.
ObjectiveThis course will provide an advanced introduction to portfolio choice problems in the presence of different market frictions. We will introduce different mathematical solution techniques from stochastic control and martingale theory. In addition, we will also discuss the economic implications of the results.
Lecture notesNot available.
LiteratureRobert Merton (1969): Lifetime Portfolio Selection under Uncertainty. Available at Link

Stefan Gerhold, Paolo Guasoni, Johannes Muhle-Karbe, and Walter Schachermayer (2011): Transaction Costs, Trading Volume, and the Liquidity Premium. Available at Link

More references will be announced in the lecture.
Prerequisites / NoticeMathematical Finance and Stochastic Processes.