Multiperiod Portfolio Optimization With Many Risky Assets And General Transaction Costs
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Author | : Victor DeMiguel |
Publisher | : |
Total Pages | : 48 |
Release | : 2014 |
Genre | : |
ISBN | : |
We analyze the optimal portfolio policy for a multiperiod mean-variance investor facing a large number of risky assets in the presence of general transaction cost. For proportional transaction costs, we give a closed-form expression for a no-trade region, shaped as a multi-dimensional parallelogram, and show how the optimal portfolio policy can be efficiently computed by solving a single quadratic program. For market impact costs, we show that at each period it is optimal to trade to the boundary of a state-dependent rebalancing region. Finally, we show empirically that the utility loss associated with ignoring transaction costs may be large.
Author | : Kumar Muthuraman |
Publisher | : |
Total Pages | : 32 |
Release | : 2004 |
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We provide a computational study of the problem of optimally allocating wealth among multiple stocks and a bank account, in order to maximize the infinite horizon discounted utility of consumption. We consider the situation where the transfer of wealth from one asset to another involves transaction costs that are proportional to the amount of wealth transferred. Our model allows for correlation between the price processes, which in turn gives rise to interesting hedging strategies. This results in a stochastic control problem with both drift-rate and singular controls, that can be recast as a free boundary problem in partial differential equations. Adapting the finite element method and using an iterative procedure that converts the free-boundary problem into a sequence of fixed boundary problems, we provide an efficient numerical method for solving this problem. We present computational results that describe the impact of volatility, risk aversion of the investor, level of transaction costs and correlation among the risky assets on the structure of the optimal policy. Finally we suggest and quantify some heuristic approximations.
Author | : Stephen Boyd |
Publisher | : |
Total Pages | : 92 |
Release | : 2017-07-28 |
Genre | : Mathematics |
ISBN | : 9781680833287 |
This monograph collects in one place the basic deļ¬nitions, a careful description of the model, and discussion of how convex optimization can be used in multi-period trading, all in a common notation and framework.
Author | : Efthalia Chryssikou |
Publisher | : |
Total Pages | : 291 |
Release | : 1998 |
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Author | : Husnu Kipeak |
Publisher | : |
Total Pages | : 178 |
Release | : 2001 |
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Total Pages | : |
Release | : 2002 |
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Author | : Victor DeMiguel |
Publisher | : |
Total Pages | : 45 |
Release | : 2014 |
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ISBN | : |
We study the impact of parameter uncertainty on the expected utility of a multiperiod investor subject to quadratic transaction costs. We characterize the utility loss associated with ignoring parameter uncertainty, and show that it is equal to the product between the single-period utility loss and another term that captures the effects of the multiperiod mean-variance utility and transaction cost losses. To mitigate the impact of parameter uncertainty, we propose two multiperiod shrinkage portfolios and demonstrate with simulated and empirical datasets that they substantially outperform portfolios that ignore parameter uncertainty, transaction costs, or both.
Author | : Yongyang Cai |
Publisher | : |
Total Pages | : 0 |
Release | : 2013 |
Genre | : Economics |
ISBN | : |
We apply numerical dynamic programming to multi-asset dynamic portfolio optimization problems with proportional transaction costs. Examples include problems with one safe asset plus two to six risky stocks, and seven to 360 trading periods in a finite horizon problem. These examples show that it is now tractable to solve such problems.
Author | : Razvan Gabriel Oprisor |
Publisher | : |
Total Pages | : 0 |
Release | : 2021 |
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We propose a novel multi-period trading model that allows portfolio managers to perform optimal portfolio allocation while incorporating their interpretable investment views. This model's significant advantage is its incorporation of the latest asset return regimes to quantitatively solve managers' question: how certain should one be that a given investment view is occurring? First, we describe a framework for multi-period portfolio allocation formulated as a convex optimization problem that trades off expected return, risk and transaction costs. Second, we use the Black-Litterman model to combine investment views specified in a simple linear combination based format with the market portfolio. A data-driven method to adjust the confidence in the manager's views by comparing them to dynamically updated regime-switching forecasts is proposed. Our contribution is to incorporate both multi-period trading and interpretable investment views into one efficient framework and offer a novel method of using regime-switching to determine each view's confidence.
Author | : |
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Total Pages | : |
Release | : 2014 |
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Across various sets of parameters, duality gaps between lower and upper bounds are smaller than 3% in most examples. We are able to solve the problem up to the size of 20 risky assets and a 30-year-long horizon.