Fairness and Efficiency in Multiportfolio Optimization

Dan A. Iancu () and Nikolaos Trichakis ()
Additional contact information
Dan A. Iancu: Graduate School of Business, Stanford University, Stanford, California 94305
Nikolaos Trichakis: Technology and Operations Management, Harvard Business School, Boston, Massachusetts 02163

Operations Research, 2014, vol. 62, issue 6, 1285-1301

Abstract: We deal with the problem faced by a portfolio manager in charge of multiple accounts. We argue that because of market impact costs, this setting differs in several subtle ways from the classical (single account) case, with the key distinction being that the performance of each individual account typically depends on the trading strategies of other accounts, as well. We propose a novel, tractable approach for jointly optimizing the trading activities of all accounts and also splitting the associated market impact costs between the accounts. Our approach allows the manager to balance the conflicting objectives of maximizing the aggregate gains from joint optimization and distributing them across the accounts in an equitable way. We perform numerical studies that suggest that our approach outperforms existing methods employed in the industry or discussed in the literature.

Keywords: portfolio optimization; multiportfolio; fairness; cost sharing; transaction costs; convex optimization (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://dx.doi.org/10.1287/opre.2014.1310 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:oropre:v:62:y:2014:i:6:p:1285-1301

Access Statistics for this article

More articles in Operations Research from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().