Analytical Solutions of Optimal Portfolio Rebalancing
Author | : Ding Liu |
Publisher | : |
Total Pages | : 33 |
Release | : 2017 |
ISBN-10 | : OCLC:1305016301 |
ISBN-13 | : |
Rating | : 4/5 (01 Downloads) |
Book excerpt: We study optimal portfolio rebalancing in a mean-variance type framework and present new analytical results for the general case of multiple risky assets. We first derive the equation of the no-trade region, and then provide analytical solutions and conditions of the optimal portfolio under several simplifying yet important models of asset returns: uncorrelated, same non-zero pairwise correlation, and one-factor covariance model. In some cases, the analytical conditions involve one or two unknown parameters and we use combinatorial algorithms to determine their exact values. Our results provide useful and interesting insights into the problem, and sharpen our understanding of the optimal portfolio.