Mean-variance-skewness model for portfolio selection with transaction costs

Mean-variance-skewness model for portfolio selection with transaction costs

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Article ID: iaor200569
Country: United States
Volume: 34
Issue: 4
Start Page Number: 255
End Page Number: 262
Publication Date: Mar 2003
Journal: International Journal of Systems Science
Authors: , ,
Keywords: programming: linear
Abstract:

A mean-variance-skewness model is proposed for portfolio selection with transaction costs. It is assumed that the transaction cost is a V-shaped function of the difference between the existing portfolio and a new one. The mean-variance-skewness model is a non-smooth programming problem. To overcome the difficulty arising from non-smoothness, the problem was transformed into a linear programming problem. Therefore, this technique can be used to solve large-scale portfolio selection problems. A numerical example is used to illustrate that the method can be efficiently used in practice.

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