A Note on Portfolio Optimization with Quadratic Transaction Costs
Portfolio Management
2020-01-07 v1 Computational Finance
Machine Learning
Abstract
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 lies in the specification of the budget constraint, which is no longer linear. We provide numerical algorithms for solving this issue and illustrate how transaction costs may considerably impact the expected returns of optimized portfolios.
Keywords
Cite
@article{arxiv.2001.01612,
title = {A Note on Portfolio Optimization with Quadratic Transaction Costs},
author = {Pierre Chen and Edmond Lezmi and Thierry Roncalli and Jiali Xu},
journal= {arXiv preprint arXiv:2001.01612},
year = {2020}
}
Comments
18 pages, 5 figures