Optimal Rebalancing Frequencies for Multidimensional Portfolios

2015/10/17 by Ekren, Ibrahim, Liu, Ren, Muhle-Karbe, Johannes
#FOS: Economics and business #FOS: Mathematics #Optimization and Control (math.OC) #Portfolio Management (q-fin.PM) #Probability (math.PR)

paper · doi:10.48550/arxiv.1510.05097

Abstract

We study optimal investment with multiple assets in the presence of small proportional transaction costs. Rather than computing an asymptotically optimal no-trade region, we optimize over suitable trading frequencies. We derive explicit formulas for these and the associated welfare losses due to small transaction costs in a general, multidimensional diffusion setting, and compare their performance to a number of alternatives using Monte Carlo simulations.

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