Multiperiod Portfolio Optimization with Many Risky Assets and General Transaction Costs
Author | : Victor DeMiguel |
Publisher | : |
Total Pages | : 48 |
Release | : 2014 |
ISBN-10 | : OCLC:1308949073 |
ISBN-13 | : |
Rating | : 4/5 (73 Downloads) |
Book excerpt: We analyze the optimal portfolio policy for a multiperiod mean-variance investor facing a large number of risky assets in the presence of general transaction cost. For proportional transaction costs, we give a closed-form expression for a no-trade region, shaped as a multi-dimensional parallelogram, and show how the optimal portfolio policy can be efficiently computed by solving a single quadratic program. For market impact costs, we show that at each period it is optimal to trade to the boundary of a state-dependent rebalancing region. Finally, we show empirically that the utility loss associated with ignoring transaction costs may be large.