Optimal Strategy of Consumption and Investment with Transaction Costs Charged

The introduction of transaction costs makes complex the optimal strate gy of consumption and investment. With transaction costs charged, stocks cannot be traded heavily. This article studies the optimal strategy of consumption and investment for a HARA investor who has to pay transaction costs proportionall y and wants to maximize the expected utility of finite/or infinite horizon. With a focus on the two assets , the HJB can be reduced from a PDE to an ODE by using the concavity and the homothetic property of the value function,. The analytic forms of the value functions in the transaction zone and HJB equation which the value function requires in the NT zone are given