Optimizing Transition Strategies for Small to Medium Sized Portfolios

Nakul Upadhya and Alexandre Granzer-Guay

Papers from arXiv.org

Abstract: This work discusses the benefits of constrained portfolio turnover strategies for small to medium-sized portfolios. We propose a dynamic multi-period model that aims to minimize transaction costs and maximize terminal wealth levels whilst adhering to strict portfolio turnover constraints. Our results demonstrate that using our framework in combination with a reasonable forecast, can lead to higher portfolio values and lower transaction costs on average when compared to a naive, single-period model. Such results were maintained given different problem cases, such as, trading horizon, assets under management, wealth levels, etc. In addition, the proposed model lends itself to a reformulation that makes use of the column generation algorithm which can be strategically leveraged to reduce complexity and solving times.

Date: 2024-01, Revised 2024-01
New Economics Papers: this item is included in nep-fmk
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