An investor trades a safe and several risky assets with linear price impact to maximize expected utility from terminal wealth. In the limit for small impact costs, we explicitly determine the optimal policy and welfare, in a general Markovian setting allowing for stochastic market, cost, and preference parameters. These results shed light on the general structure of the problem at hand, and also unveil close connections to optimal execution problems and to other market frictions such as proportional and fixed transaction costs.
All Science Journal Classification (ASJC) codes
- Social Sciences (miscellaneous)
- Economics and Econometrics
- Applied Mathematics
- portfolio choice
- price impact
- viscosity solutions