Multiperiod portfolio optimization with multiple risky assets and general transaction costs Articles uri icon

publication date

  • August 2016

start page

  • 108

end page

  • 120

volume

  • 69

international standard serial number (ISSN)

  • 0378-4266

electronic international standard serial number (EISSN)

  • 1872-6372

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 efficiently 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. (C) 2016 Elsevier B.V. All rights reserved.

keywords

  • portfolio optimization; multiperiod utility; no-trade region; market impact; investment; consumption; allocation; selection