Download or read book Optimal Portfolio Rebalancing with Transaction Costs written by Wendell Helms Fleming and published by . This book was released on 1991 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Rebalancing Portfolios Under Transaction Costs written by Raj Sau and published by . This book was released on 2012 with total page 98 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this thesis we study the performance of a re-balanced portfolio strategy relative to the market portfolio in the presence of transaction costs. The strategy involves re-balancing to fixed weights at regular time steps. We consider an equity market with m Stocks. Our goal is to compare the asymptotic growth rate of such strategies to the market. With the application of an Ergodic theorem, we show that the problem can be transformed to computing the expectation of a functional of the market weightsof the stocks. Expressing the gain in the re-balanced portfolio over the market portfolio as a functional of the market weights, we derive the condition under which the growth rate of the rebalanced strategy beats that of the market portfolio. We also show a method to compute the maximum transaction cost that can be paid in order for the rebalanced portfolio to beat the market portfolio. We discuss the result in the context of the Volatility-Stabilized model and the Geometric Brownian Motion model. In the secondpart of the thesis, we define the optimal re-balancing portfolio that maximizes the growth rate within the class of such fixed weight re-balancing strategies. We study the relationship of the optimum portfolio and optimal growth rate to the re-balancing time step and transaction cost coefficient. Finally, we look at the performance of such re-balancing strategies on real data sets obtained from Yahoo Finance. The study indicates that for small trading time steps, the re-balancing strategy under performs compared to the market in the presence of transaction costs.

Download or read book Portfolio Optimization with Transaction Costs and Preconceived Portfolio Weights written by Jeremy Dale Myers and published by . This book was released on 2009 with total page 88 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the financial world, many quantitative investment managers have developed sophisticated statistical techniques to generate signals about expected returns from previous market data. However, the manner in which they apply this information to rebalancing their portfolios is often ad-hoc, trading off between rebalancing their assets into an allocation that generates the greatest expected return based on the generated signals and the incurred transaction costs that the reallocation will require. In this thesis, we develop an approximation to our investor's true value function which incorporates both return predictability and transaction costs. By optimizing our approximate value function at each time step, we will generate a portfolio strategy that closely emulates the optimal portfolio strategy, which is based on the true value function. In order to determine the optimal set of parameters for our approximate function which will generate the best overall portfolio performance, we develop a simulation-based method. Our computational implementation is verified against well-known base cases. We determine the optimal parameters for our approximate function in the single stock and bond case. In addition, we determine a confidence level on our simulation results. Our approximate function gives us useful insight into the optimal portfolio allocation in complex higher dimensional cases. Our function derivation and simulation methodology extend easily to portfolio allocation in higher dimensional cases, and we implement the modifications required to run these simulations. Simple cases are tested and more complex tests are specified for testing when appropriate dedicated computing resources are available.

Download or read book Optimal Portfolio Selection with Fixed Transaction Costs in the Presence of Jumps and Random Drift written by Ajay Subramanian Aiyer and published by . This book was released on 1996 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Optimal Rebalancing Strategy for a Two asset Stock and Bond Portfolio written by Sheau Yann Ling-Barnes and published by . This book was released on 2012 with total page 104 pages. Available in PDF, EPUB and Kindle. Book excerpt: It is commonly believed that a continuously rebalanced investment portfolio achieves the optimal investment returns by maintaining a diversified portfolio that satisfies each individual investor's risk aversion or tolerance level. However, frequent rebalancing is costly. This paper sought to determine the optimal rebalancing method of a 60/40 stock and bond portfolio, taking into consideration transaction costs and capital gains taxes. This rebalancing method looked into two strategies of approach: time interval and percentage movement rebalancing. The first strategy rebalances a portfolio by a set frequency, be it monthly, quarterly, or yearly, etc. The second strategy rebalances a portfolio by a certain percentage movement away from the portfolio's original 60/40 mix. The findings from this exercise indicated that less frequent rebalancing is ideal for achievable maximum investment returns, including or excluding transaction costs and taxes. This finding is also consistent with the fact that rebalancing by higher percentage movement also achieves the same results of higher portfolio returns. However, with either strategy mentioned above, the longer the interval or the bigger the percentage movements away from a portfolio's original mix, the higher the standard deviation because in either case, the stocks eventually dominate the portfolio and causing it to deviate significantly from its original mix of 60/40.

Download or read book Optimal Portfolio Choice with Dynamic Asymmetric Correlations and Transaction Constraints written by Letian Ding and published by . This book was released on 2010 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops a framework for constructing portfolios with superior out-of-sample performance in the presence of estimation errors. Our framework relies on solving the classical mean-variance problem with dynamic portfolio rebalancing at a comparatively-high frequency level. With the employment of A-DCC GARCH model, we found that the usage of turnover constraints will tend to enhance the performance of the portfolios sufficiently high to overcome transaction costs in practice. For a long-only optimal portfolio based on a linear combination of two different strategies we find a return exceeding 51% per annual with annual volatility equal to 35% over the 1998-2007 period. We argue that the advantage of our framework comes from the mean-reverting nature of the stock market and the impact of the estimation errors in high frequency level. Our works indicate that one can successfully move from ordinary monthly or weekly adjusting strategies to high frequency and dynamic asset management without the significant increase of transaction costs.

Download or read book Optimal Rebalancing Strategy Using Dynamic Programming for Institutional Portfolios written by Walter Sun and published by . This book was released on 2005 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: Institutional fund managers generally rebalance using ad hoc methods such as calendar basis or tolerance band triggers. We propose a different framework that quantifies the cost of a rebalancing strategy in terms of risk-adjusted returns net of transaction costs. We then develop an optimal rebalancing strategy that actively seeks to minimize that cost. We use certainty equivalents and the transaction costs associated with a policy to define a cost-to-go function, and we minimize this expected cost-to-go using dynamic programming. We apply Monte Carlo simulations to demonstrate that our method outperforms traditional rebalancing strategies like monthly, quarterly, annual, and 5% tolerance rebalancing. We also show the robustness of our method to model error by performing sensitivity analyses.

Download or read book Efficient Asset Management written by Richard O. Michaud and published by Oxford University Press. This book was released on 2008-03-03 with total page 145 pages. Available in PDF, EPUB and Kindle. Book excerpt: In spite of theoretical benefits, Markowitz mean-variance (MV) optimized portfolios often fail to meet practical investment goals of marketability, usability, and performance, prompting many investors to seek simpler alternatives. Financial experts Richard and Robert Michaud demonstrate that the limitations of MV optimization are not the result of conceptual flaws in Markowitz theory but unrealistic representation of investment information. What is missing is a realistic treatment of estimation error in the optimization and rebalancing process. The text provides a non-technical review of classical Markowitz optimization and traditional objections. The authors demonstrate that in practice the single most important limitation of MV optimization is oversensitivity to estimation error. Portfolio optimization requires a modern statistical perspective. Efficient Asset Management, Second Edition uses Monte Carlo resampling to address information uncertainty and define Resampled Efficiency (RE) technology. RE optimized portfolios represent a new definition of portfolio optimality that is more investment intuitive, robust, and provably investment effective. RE rebalancing provides the first rigorous portfolio trading, monitoring, and asset importance rules, avoiding widespread ad hoc methods in current practice. The Second Edition resolves several open issues and misunderstandings that have emerged since the original edition. The new edition includes new proofs of effectiveness, substantial revisions of statistical estimation, extensive discussion of long-short optimization, and new tools for dealing with estimation error in applications and enhancing computational efficiency. RE optimization is shown to be a Bayesian-based generalization and enhancement of Markowitz's solution. RE technology corrects many current practices that may adversely impact the investment value of trillions of dollars under current asset management. RE optimization technology may also be useful in other financial optimizations and more generally in multivariate estimation contexts of information uncertainty with Bayesian linear constraints. Michaud and Michaud's new book includes numerous additional proposals to enhance investment value including Stein and Bayesian methods for improved input estimation, the use of portfolio priors, and an economic perspective for asset-liability optimization. Applications include investment policy, asset allocation, and equity portfolio optimization. A simple global asset allocation problem illustrates portfolio optimization techniques. A final chapter includes practical advice for avoiding simple portfolio design errors. With its important implications for investment practice, Efficient Asset Management 's highly intuitive yet rigorous approach to defining optimal portfolios will appeal to investment management executives, consultants, brokers, and anyone seeking to stay abreast of current investment technology. Through practical examples and illustrations, Michaud and Michaud update the practice of optimization for modern investment management.

Download or read book Optimal Execution for Portfolio Transactions written by Alexander Fadeev and published by . This book was released on 2007 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: In my thesis I explore the problem of optimizing trading strategies for complex portfolio transitions. Institutional investors run into this issue during periodic portfolio rebalancing or transition between asset managers. The costs of rebalancing can be broadly broken into trading costs (both the transaction cost and the market impact) and the opportunity costs of delaying the execution and bearing the risk of current-to-target portfolio divergence. This thesis proposes a methodology for measuring the opportunity cost as well as a strategy that minimizes the proposed measure through optimal portfolio transition execution. The benefits from the proposed trading strategy are benchmarked against the industry standard portfolio trading practices.

Download or read book Handbook Of Financial Econometrics Mathematics Statistics And Machine Learning In 4 Volumes written by Cheng Few Lee and published by World Scientific. This book was released on 2020-07-30 with total page 5053 pages. Available in PDF, EPUB and Kindle. Book excerpt: This four-volume handbook covers important concepts and tools used in the fields of financial econometrics, mathematics, statistics, and machine learning. Econometric methods have been applied in asset pricing, corporate finance, international finance, options and futures, risk management, and in stress testing for financial institutions. This handbook discusses a variety of econometric methods, including single equation multiple regression, simultaneous equation regression, and panel data analysis, among others. It also covers statistical distributions, such as the binomial and log normal distributions, in light of their applications to portfolio theory and asset management in addition to their use in research regarding options and futures contracts.In both theory and methodology, we need to rely upon mathematics, which includes linear algebra, geometry, differential equations, Stochastic differential equation (Ito calculus), optimization, constrained optimization, and others. These forms of mathematics have been used to derive capital market line, security market line (capital asset pricing model), option pricing model, portfolio analysis, and others.In recent times, an increased importance has been given to computer technology in financial research. Different computer languages and programming techniques are important tools for empirical research in finance. Hence, simulation, machine learning, big data, and financial payments are explored in this handbook.Led by Distinguished Professor Cheng Few Lee from Rutgers University, this multi-volume work integrates theoretical, methodological, and practical issues based on his years of academic and industry experience.

Download or read book Rebalancing Revisited written by David T. Brown and published by . This book was released on 2006 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: Portfolio rebalancing strategies involve trading tracking error off against the transaction costs of frequent trading to avoid tracking error. Existing analytical work derives optimal rebalancing strategies that result in minimal expected transactions required to achieve a given level of tracking error. Employing the strategies described in the literature can obtain the same level of tracking error as naiuml;ve strategies often observed in practice with much lower transaction costs. We show that further (and substantial) reductions in expected transaction costs can be obtained by using derivatives to synthetically rebalance a portfolio. However, the design of an efficient synthetic rebalancing program is complicated. We show the key elements of the design of an efficient synthetic rebalancing program. Finally, we show how a rebalancing strategy should be designed when a portfolio experiences cash inflows and outflows.

Download or read book Multiperiod Portfolio Optimization with Many Risky Assets and General Transaction Costs written by Victor DeMiguel and published by . This book was released on 2014 with total page 48 pages. Available in PDF, EPUB and Kindle. 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.

Download or read book Investigating Optimal Investment Problems for Portfolios of Cointegrated Assets with Transaction Costs written by Matthew D. Hancock and published by . This book was released on 2014 with total page 119 pages. Available in PDF, EPUB and Kindle. Book excerpt: Over the last few decades, it has become increasingly important to study and solve problems of portfolio optimization. For the focus of this dissertation, we consider an optimal investment problem in which an investor allocates his or her wealth among cointegrated risky assets. We consider both power and logarithmic utility functions to describe the investor's risk aversion preferences. The investor seeks to find the optimal portfolio to maximize his or her expected utility from terminal wealth, given the dynamics of the cointegrated assets' prices and total wealth. We also study this optimization problem in the regime of fast mean-reversion for the cointegrated asset prices. We solve this continuous-time problem according to the typical Hamilton-Jacobi-Bellman Equation structure. We explicitly solve this particular problem by recognizing a correct guess solution for the optimal value function and ultimately end up solving a system of ODEs for which the explicit solution depends on. In addition, we resolve this optimization problem by a similar method to obtain an approximation solution for the value function. In the regime of fast mean-reversion, the impact of cointegration on this problem becomes particularly interesting for large enough mean-reversion rates. Under these conditions, we also find that the approximation solution becomes a better estimate for the true value function. In addition, here the investor can take adavantage of the market to make potentially enormous, even infinite, amounts of money through constantly rebalancing his or her portfolio. This seemingly ideal situation is unrealistic, and we thus must incorporate transaction costs into the model. With transaction costs added, this optimization problem involving cointegrated assets unfortunately does not admit an explicit solution. However, we can numerically analyze mutliple forms of this problem.

Download or read book Asset Allocation with Correlation written by Rachael Carroll and published by . This book was released on 2017 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: We assess the ability of minimum-variance portfolio allocation strategies accounting for time-varying correlation between assets to provide performance benefits relative to an equally-weighted portfolio. Prior to transaction costs correlation-based strategies emphatically outperform the equally-weighted benchmark. This finding is strongest for short horizon correlation forecasts and attributed to dynamic correlation as opposed to variance forecasts. Thus, estimation error is not found to be the primary obstacle to successful portfolio optimization. Rather, frequent rebalancing and associated transaction costs pose a significant challenge. Limiting portfolio turnover through short-selling restrictions and greater rebalancing error tolerance results in regular outperformance of the correlation based strategies even for large transaction costs. Taken together, these findings provide evidence of a trade-off between optimal portfolio performance, forecasting horizon, rebalancing frequency and transaction costs.

Download or read book Optimal Portfolio Selection with Transaction Costs written by Phelim P. Boyle and published by . This book was released on 1994 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Optimal Portfolio Selection with Transaction Costs a Model with Non constant Transaction Cost Rate written by Andriy Demchuk and published by . This book was released on 1999 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The White Coat Investor written by James M. Dahle and published by White Coat Investor LLC the. This book was released on 2014-01 with total page 160 pages. Available in PDF, EPUB and Kindle. Book excerpt: Written by a practicing emergency physician, The White Coat Investor is a high-yield manual that specifically deals with the financial issues facing medical students, residents, physicians, dentists, and similar high-income professionals. Doctors are highly-educated and extensively trained at making difficult diagnoses and performing life saving procedures. However, they receive little to no training in business, personal finance, investing, insurance, taxes, estate planning, and asset protection. This book fills in the gaps and will teach you to use your high income to escape from your student loans, provide for your family, build wealth, and stop getting ripped off by unscrupulous financial professionals. Straight talk and clear explanations allow the book to be easily digested by a novice to the subject matter yet the book also contains advanced concepts specific to physicians you won't find in other financial books. This book will teach you how to: Graduate from medical school with as little debt as possible Escape from student loans within two to five years of residency graduation Purchase the right types and amounts of insurance Decide when to buy a house and how much to spend on it Learn to invest in a sensible, low-cost and effective manner with or without the assistance of an advisor Avoid investments which are designed to be sold, not bought Select advisors who give great service and advice at a fair price Become a millionaire within five to ten years of residency graduation Use a "Backdoor Roth IRA" and "Stealth IRA" to boost your retirement funds and decrease your taxes Protect your hard-won assets from professional and personal lawsuits Avoid estate taxes, avoid probate, and ensure your children and your money go where you want when you die Minimize your tax burden, keeping more of your hard-earned money Decide between an employee job and an independent contractor job Choose between sole proprietorship, Limited Liability Company, S Corporation, and C Corporation Take a look at the first pages of the book by clicking on the Look Inside feature Praise For The White Coat Investor "Much of my financial planning practice is helping doctors to correct mistakes that reading this book would have avoided in the first place." - Allan S. Roth, MBA, CPA, CFP(R), Author of How a Second Grader Beats Wall Street "Jim Dahle has done a lot of thinking about the peculiar financial problems facing physicians, and you, lucky reader, are about to reap the bounty of both his experience and his research." - William J. Bernstein, MD, Author of The Investor's Manifesto and seven other investing books "This book should be in every career counselor's office and delivered with every medical degree." - Rick Van Ness, Author of Common Sense Investing "The White Coat Investor provides an expert consult for your finances. I now feel confident I can be a millionaire at 40 without feeling like a jerk." - Joe Jones, DO "Jim Dahle has done for physician financial illiteracy what penicillin did for neurosyphilis." - Dennis Bethel, MD "An excellent practical personal finance guide for physicians in training and in practice from a non biased source we can actually trust." - Greg E Wilde, M.D Scroll up, click the buy button, and get started today!