4 research outputs found
Optimal Investment Under Transaction Costs: A Threshold Rebalanced Portfolio Approach
We study optimal investment in a financial market having a finite number of
assets from a signal processing perspective. We investigate how an investor
should distribute capital over these assets and when he should reallocate the
distribution of the funds over these assets to maximize the cumulative wealth
over any investment period. In particular, we introduce a portfolio selection
algorithm that maximizes the expected cumulative wealth in i.i.d. two-asset
discrete-time markets where the market levies proportional transaction costs in
buying and selling stocks. We achieve this using "threshold rebalanced
portfolios", where trading occurs only if the portfolio breaches certain
thresholds. Under the assumption that the relative price sequences have
log-normal distribution from the Black-Scholes model, we evaluate the expected
wealth under proportional transaction costs and find the threshold rebalanced
portfolio that achieves the maximal expected cumulative wealth over any
investment period. Our derivations can be readily extended to markets having
more than two stocks, where these extensions are pointed out in the paper. As
predicted from our derivations, we significantly improve the achieved wealth
over portfolio selection algorithms from the literature on historical data
sets.Comment: Submitted to IEEE Transactions on Signal Processin
Growth optimal investment with threshold rebalancing portfolios under transaction costs
We study how to invest optimally in a stock market having a finite number of assets from a signal processing perspective. In particular, we introduce a portfolio selection algorithm that maximizes the expected cumulative wealth in i.i.d. two-asset discrete-time markets where the market levies proportional transaction costs in buying and selling stocks. This is achieved by using 'threshold rebalanced portfolios', where trading occurs only if the portfolio breaches certain thresholds. Under the assumption that the relative price sequences have log-normal distribution from the Black-Scholes model, we evaluate the expected wealth under proportional transaction costs and find the threshold rebalanced portfolio that achieves the maximal expected cumulative wealth over any investment period. © 2013 IEEE
Semi-universal portfolios with transaction costs
Ministry of Education, Singapore under its Academic Research Funding Tier