An Algorithm for Portfolio Optimization with Variable Transaction Costs,Part 2: Computational Analysis

In Part 1 of this paper, we introduced a (2K+1)n-dimensional portfolio optimization problem with variable transaction costs taken into account. We presented a method for solving the (2K+1)n-dimensional problem by solving a sequence of n-dimensional optimization problems accounting for the transaction costs implicitly rather than explicitly. In Part 2, we propose a degeneracy resolving rule, present computational results comparing our method with the interior-point optimizer of Mosek, well known for its speed and efficient use of sparsity, and also address the efficiency of the new method. This research was supported by the National Science and Engineering Research Council of Canada and the Austrian National Bank. The authors wish to acknowledge the valuable assistance of Jivendra Kale, Zhengzheng Zhou and Associate Editor Franco Giannessi for thoughtful comments and suggestions.