Numerical Solution of Dynamic Portfolio Optimization with Transaction Costs
Portfolio Management
2020-03-05 v1 General Economics
Computational Finance
Economics
Mathematical Finance
Abstract
We apply numerical dynamic programming techniques to solve discrete-time multi-asset dynamic portfolio optimization problems with proportional transaction costs and shorting/borrowing constraints. Examples include problems with multiple assets, and many trading periods in a finite horizon problem. We also solve dynamic stochastic problems, with a portfolio including one risk-free asset, an option, and its underlying risky asset, under the existence of transaction costs and constraints. These examples show that it is now tractable to solve such problems.
Keywords
Cite
@article{arxiv.2003.01809,
title = {Numerical Solution of Dynamic Portfolio Optimization with Transaction Costs},
author = {Yongyang Cai and Kenneth Judd and Rong Xu},
journal= {arXiv preprint arXiv:2003.01809},
year = {2020}
}