Discrete Portfolio Adjustment with Fixed Transaction Costs

14 Pages Posted: 8 Mar 2014 Last revised: 4 Jan 2016

See all articles by Linus Wilson

Linus Wilson

University of Louisiana at Lafayette - College of Business Administration

Date Written: January 3, 2016

Abstract

This paper presents a closed form solution to the portfolio adjustment problem in discrete time when the investor faces fixed transaction costs. This transaction cost model assumes a mean-variance investor who wants to adjust her holdings of a risky and risk-free asset. It is shown how this model can be calibrated to be used with a variety of risk models such as life cycle portfolio weights and value at risk (VaR) models. The decision problem can easily be inputted into and calculated in Excel.

Keywords: adjustment costs, alpha models, brokerage commissions, fixed costs, lifecycle funds, portfolio selection, portfolio theory, risk management, transaction costs, Value at Risk (VaR)

JEL Classification: G11

Suggested Citation

Wilson, Linus, Discrete Portfolio Adjustment with Fixed Transaction Costs (January 3, 2016). Available at SSRN: https://ssrn.com/abstract=2406021 or http://dx.doi.org/10.2139/ssrn.2406021

Linus Wilson (Contact Author)

University of Louisiana at Lafayette - College of Business Administration ( email )

Department of Economics & Finance
214 Hebrard Blvd., Room 326
Lafayette, LA 70504-0200
United States
(337) 482-6209 (Phone)
(337) 482-6675 (Fax)

HOME PAGE: http://www.linuswilson.com

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