Long-run risk-sensitive portfolio optimisation with proportional transaction costs and log Lévy asset prices

Abstract

We study a long-run risk-sensitive portfolio problem with proportional transaction costs in a continuous-time market whose log-prices are given as a Lévy process, and rebalancing is possible only at random moments of investment opportunities. Using a Schauder fixed-point argument, we solve the ergodic Bellman equation without any mixing assumptions. Under additional full-support and growth conditions, the solution to the Bellman equation is unique, with the unique continuous maximiser. We also prove vanishing risk-aversion asymptotics towards the risk-neutral (Kelly) problem and convergence of a dyadic-time-grid approximation of the random intervention moments. Numerical examples illustrate the results.