Abstract
This paper concerns optimal dynamic portfolio choice with quadratic utility when there are market impact costs. The optimal policy is difficult to characterize, so we look instead for sub-optimal policies. Our proposed suboptimal policy solves a tractable dynamic portfolio choice problem where the cost of trading is captured in the objective instead of the price dynamics. A multiple time scale asymptotic expansion shows that our proposed policy has sensible structural properties, while numerical experiments show promising performance and robustness properties.
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