Rebalancing with Linear and Quadratic Costs

30 Pages Posted: 28 Feb 2014 Last revised: 4 Sep 2017

See all articles by Ren Liu

Ren Liu

ETH Zürich

Johannes Muhle-Karbe

Imperial College London - Department of Mathematics

Marko Weber

National University of Singapore (NUS) - Department of Mathematics

Date Written: September 4, 2017

Abstract

We consider a market consisting of one safe and one risky asset, which offer constant investment opportunities. Taking into account both proportional transaction costs and linear price impact, we derive optimal rebalancing policies for representative investors with constant relative risk aversion and a long horizon.

Keywords: price impact, transaction costs, portfolio choice, long-run

JEL Classification: G11, G12

Suggested Citation

Liu, Ren and Muhle-Karbe, Johannes and Weber, Marko, Rebalancing with Linear and Quadratic Costs (September 4, 2017). Swiss Finance Institute Research Paper No. 14-16, Available at SSRN: https://ssrn.com/abstract=2402241 or http://dx.doi.org/10.2139/ssrn.2402241

Ren Liu

ETH Zürich ( email )

Rämistrasse 101
Zurich, CH-8092
Switzerland

Johannes Muhle-Karbe (Contact Author)

Imperial College London - Department of Mathematics ( email )

South Kensington Campus
Imperial College
LONDON, SW7 1NE
United Kingdom

HOME PAGE: http://www.ma.imperial.ac.uk/~jmuhleka/

Marko Weber

National University of Singapore (NUS) - Department of Mathematics ( email )

Department of Mathematics
Singapore, 117543
Singapore

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