Portfolio optimization problem under concave transaction costs and minimal transaction unit constraints |
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Authors: | Hiroshi Konno Annista Wijayanayake |
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Institution: | (1) Department of Industrial Engineering & Management and Center for Research in Advanced Financial Technologies, Tokyo Institute of Technology, Japan. e-mail: konno@me.titech.ac.jp, JP;(2) Department of Industrial Engineering & Management and Tokyo Institute of Technology, Japan. e-mail: anni@me.titech.ac.jp, JP |
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Abstract: | We will propose a branch and bound algorithm for calculating a globally optimal solution of a portfolio construction/rebalancing
problem under concave transaction costs and minimal transaction unit constraints. We will employ the absolute deviation of
the rate of return of the portfolio as the measure of risk and solve linear programming subproblems by introducing (piecewise)
linear underestimating function for concave transaction cost functions. It will be shown by a series of numerical experiments
that the algorithm can solve the problem of practical size in an efficient manner.
Received: July 15, 1999 / Accepted: October 1, 2000?Published online December 15, 2000 |
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Keywords: | : portfolio optimization – concave transaction cost – rebalancing – minimal transaction unit – branch and bound algorithm – global optimization |
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