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: | Liu S., Wang S.Y., Qiu W. |
Keywords: | programming: linear |
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.