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Multiperiod portfolio optimization with multiple risky assets and general transaction costs

Journal

Journal of Banking and Finance

Subject

Management Science and Operations

Publishing details

Journal of Banking and Finance 2016 Vol 69:August p 108-120

Authors / Editors

Mei X;DeMiguel V;Nogales F

Biographies

Victor DeMiguel

Publication Year

2016

Abstract

We analyze the optimal portfolio policy for a multiperiod mean-variance investor facing multiple risky assets in the presence of general transaction costs. 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 eciently computed for many risky assets 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 losses associated with ignoring transaction costs and behaving myopically may be large.

Keywords

Portfolio optimization; multiperiod utility; no-trade region; market impact

Available on ECCH

No


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