Related papers: A Distributed Method for Cooperative Transaction C…
In this short note, we consider mean-variance optimized portfolios with transaction costs. We show that introducing quadratic transaction costs makes the optimization problem more difficult than using linear transaction costs. The reason…
This paper studies a portfolio optimization problem in a discrete-time Markovian model of a financial market, in which asset price dynamics depend on an external process of economic factors. There are transaction costs with a structure that…
Portfolio optimization is an important process in finance that consists in finding the optimal asset allocation that maximizes expected returns while minimizing risk. When assets are allocated in discrete units, this is a combinatorial…
We theoretically and empirically study portfolio optimization under transaction costs and establish a link between turnover penalization and covariance shrinkage with the penalization governed by transaction costs. We show how the ex ante…
We consider a basic model of multi-period trading, which can be used to evaluate the performance of a trading strategy. We describe a framework for single-period optimization, where the trades in each period are found by solving a convex…
Multi-period portfolio optimization is important for real portfolio management, as it accounts for transaction costs, path-dependent risks, and the intertemporal structure of trading decisions that single-period models cannot capture.…
This survey is an introduction to asymptotic methods for portfolio-choice problems with small transaction costs. We outline how to derive the corresponding dynamic programming equations and simplify them in the small-cost limit. This allows…
In this paper, we present a distributed algorithm for solving convex, constraint-coupled, optimization problems over peer-to-peer networks. We consider a network of processors that aim to cooperatively minimize the sum of local cost…
We investigate how and when to diversify capital over assets, i.e., the portfolio selection problem, from a signal processing perspective. To this end, we first construct portfolios that achieve the optimal expected growth in i.i.d.…
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…
Optimal execution of a portfolio have been a challenging problem for institutional investors. Traders face the trade-off between average trading price and uncertainty, and traditional methods suffer from the curse of dimensionality. Here,…
We consider the multi-period portfolio optimization problem with a single asset that can be held long or short. Due to the presence of transaction costs, maximizing the immediate reward at each period may prove detrimental, as frequent…
The effect of proportional transaction costs on systematically generated portfolios is studied empirically. The performance of several portfolios (the index tracking portfolio, the equally-weighted portfolio, the entropy-weighted portfolio,…
This paper considers the finite horizon portfolio rebalancing problem in terms of mean-variance optimization, where decisions are made based on current information on asset returns and transaction costs. The study's novelty is that the…
This paper addresses a novel \emph{cost-sensitive} distributionally robust log-optimal portfolio problem, where the investor faces \emph{ambiguous} return distributions, and a general convex transaction cost model is incorporated. The…
Traders are often faced with large block orders in markets with limited liquidity and varying volatility. Executing the entire order at once usually incurs a large trading cost because of this limited liquidity. In order to minimize this…
The classical discrete time model of proportional transaction costs relies on the assumption that a feasible portfolio process has solvent increments at each step. We extend this setting in two directions, allowing for convex transaction…
Mean-variance portfolio optimization problems often involve separable nonconvex terms, including penalties on capital gains, integer share constraints, and minimum position and trade sizes. We propose a heuristic algorithm for such problems…
In this paper we consider a discrete-time risk sensitive portfolio optimization over a long time horizon with proportional transaction costs. We show that within the log-return i.i.d. framework the solution to a suitable Bellman equation…
We propose a general approximation method for determining optimal trading strategies in markets with proportional transaction costs, with a polynomial approximation of the residual value function. The method is exemplified by several…