Optimizing Transition Strategies for Small to Medium Sized Portfolios
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.
Keywords
Cite
@article{arxiv.2401.13126,
title = {Optimizing Transition Strategies for Small to Medium Sized Portfolios},
author = {Nakul Upadhya and Alexandre Granzer-Guay},
journal= {arXiv preprint arXiv:2401.13126},
year = {2024}
}
Comments
All of the discussed experiments and presented results can be reproduced using our code at https://github.com/upadhyan/Portfolio-Changeover-Optimization