Robust multiperiod portfolio management in the presence of transaction costs

Robust multiperiod portfolio management in the presence of transaction costs

0.00 Avg rating0 Votes
Article ID: iaor20084509
Country: United Kingdom
Volume: 35
Issue: 1
Start Page Number: 3
End Page Number: 17
Publication Date: Jan 2008
Journal: Computers and Operations Research
Authors: ,
Keywords: financial, optimization
Abstract:

We study the viability of different robust optimization approaches to multiperiod portfolio selection. Robust optimization models treat future asset returns as uncertain coefficients in an optimization problem, and map the level of risk aversion of the investor to the level of tolerance of the total error in asset return forecasts. We suggest robust optimization formulations of the multiperiod portfolio optimization problem that are linear and computationally efficient. The linearity of the optimization problems is an advantage when complex additional requirements need to be imposed on the portfolio structure, e.g., limitations on positions in certain assets or tax constraints. We compare the performance of our robust formulations to the performance of the traditional single period mean–variance formulation frequently employed in the financial industry.

Reviews

Required fields are marked *. Your email address will not be published.