 Portfolio rebalancing with an investment horizon and transaction costsM. Woodside-Oriakhi, C. Lucas and John Beasley Omega, 2013, vol. 41, issue 2, 406-420 Abstract: In this paper we consider the problem of rebalancing an existing financial portfolio, where transaction costs have to be paid if we change the amount held of any asset. These transaction costs can be fixed (so paid irrespective of the amount traded provided a trade occurs) and/or variable (related to the amount traded). We indicate the importance of the investment horizon when rebalancing such a portfolio and illustrate the nature of the efficient frontier that results when we have transaction costs. We model the problem as a mixed-integer quadratic programme with an explicit constraint on the amount that can be paid in transaction cost. Our model incorporates the interplay between optimal portfolio allocation, transaction costs and investment horizon. We indicate how to extend our model to include cardinality constraints and present a number of enhancements to the model to improve computational performance. Results are presented for the solution of publicly available test problems involving up to 1317 assets. Keywords: Portfolio optimisation; Transaction cost; Efficient frontier; Portfolio rebalancing; Multiperiod portfolio optimisation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jomega:v:41:y:2013:i:2:p:406-420 Ordering information: This journal article can be ordered from DOI: 10.1016/j.omega.2012.03.003 Access Statistics for this article Omega is currently edited by B. Lev More articles in Omega from Elsevier |
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