Portfolio Choice under General Utility with Transaction Costs and Search Frictions

Battle Count: 50

Highly relevant for practitioners dealing with illiquid markets where trading is restricted to discrete times (search frictions) and incurs costs. The findings on non-concave utilities (e.g., aspiration levels) challenge standard buy-no-trade-sell heuristics, offering insights for behavioral or goal-based investment strategies.

The theoretical framework involves advanced PDE theory (Schauder estimates, contraction mappings) and stochastic calculus. Implementing the numerical solution requires careful handling of the nonlocal term in the HJB equation and stability analysis for the IMEX scheme.

The paper provides detailed mathematical proofs and specifies numerical parameters (mu, sigma, lambda, T, epsilon) and the utility functions used. However, it does not explicitly provide a link to code or data, though the methodology is standard enough for replication by experts in the field.