Dynamic Portfolio Choice with Linear Rebalancing Rules
Ciamac C. Moallemi
Columbia Business School - Decision Risk and Operations
University of Cincinnati - Department of Finance - Real Estate
March 25, 2015
We consider a broad class of dynamic portfolio optimization problems that allow for complex models of return predictability, transaction costs, trading constraints, and risk considerations. Determining an optimal policy in this general setting is almost always intractable. We propose a class of linear rebalancing rules, and describe an efficient computational procedure to optimize with this class. We illustrate this method in the context of portfolio execution, and show that it achieves near optimal performance. We consider another numerical example involving dynamic trading with mean-variance preferences and demonstrate that our method can result in economically large benefits.
Number of Pages in PDF File: 59
Keywords: Portfolio Choice, Transaction Costs, Return Predictability, Portfolio Execution
JEL Classification: G11
Date posted: February 27, 2012 ; Last revised: March 26, 2015
© 2015 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo7 in 0.281 seconds