Constant Rebalanced Portfolio Optimization Under Nonlinear Transaction Costs |
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Authors: | Yuichi?Takano Email author" target="_blank">Jun-ya?GotohEmail author |
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Institution: | (1) School of Electrical and Computer Engineering, Management and Decision Support Systems Laboratory, National Technical University of Athens, 9, Iroon Polytechniou Str., 15773 Athens, Greece |
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Abstract: | We study the constant rebalancing strategy for multi-period portfolio optimization via conditional value-at-risk (CVaR) when
there are nonlinear transaction costs. This problem is difficult to solve because of its nonconvexity. The nonlinear transaction
costs and CVaR constraints make things worse; state-of-the-art nonlinear programming (NLP) solvers have trouble in reaching
even locally optimal solutions. As a practical solution, we develop a local search algorithm in which linear approximation
problems and nonlinear equations are iteratively solved. Computational results are presented, showing that the algorithm attains
a good solution in a practical time. It is better than the revised version of an existing global optimization. We also assess
the performance of the constant rebalancing strategy in comparison with the buy-and-hold strategy. |
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Keywords: | |
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