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

Carnegie Mellon University - Department of Mathematical Sciences

Marko Weber

Columbia University - Department of Industrial Engineering and Operations Research (IEOR)

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)

Carnegie Mellon University - Department of Mathematical Sciences ( email )

Pittsburgh, PA 15213-3890
United States

Marko Weber

Columbia University - Department of Industrial Engineering and Operations Research (IEOR) ( email )

331 S.W. Mudd Building
500 West 120th Street
New York, NY 10027
United States

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