Rebalancing with Linear and Quadratic Costs
30 Pages Posted: 28 Feb 2014 Last revised: 4 Sep 2017
Date Written: September 4, 2017
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: Suggested Citation