Optimal Index Tracking Under Transaction Costs and Impulse Control

I. R. C. Buckley () and R. Korn ()
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I. R. C. Buckley: Centre for Quantitative Finance, Imperial College, Exhibition Road, London, UK SW7 2BX, UK
R. Korn: FB Mathematik, Johannes Gutenberg-Universität Mainz, Staudingerweg 9 55099 Mainz, Germany

International Journal of Theoretical and Applied Finance (IJTAF), 1998, vol. 01, issue 03, 315-330

Abstract: We apply impulse control techniques to a cash management problem within a mean-variance framework. We consider the strategy of an investor who is trying to minimise both fixed and proportional transaction costs, whilst minimising the tracking error with respect to an index portfolio. The cash weight is constantly fluctuating due to the stochastic inflow and outflow of dividends and liabilities. We show the existence of an optimal strategy and compute it numerically.

Keywords: Impulse control; quasi-variational inequalities; fixed and proportional transaction costs; index tracking; portfolio management (search for similar items in EconPapers)
Date: 1998
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DOI: 10.1142/S0219024998000187

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