DocumentCode :
2028316
Title :
Optimal portfolio construction/rebalancing under nonconvex transaction cost
Author :
Konno, Hiroshi ; Wijayanayake, Annista
Author_Institution :
Dept. of Ind. Eng. & Manage., Tokyo Inst. of Technol., Japan
fYear :
2000
fDate :
2000
Firstpage :
38
Lastpage :
41
Abstract :
This paper is concerned with a minimal cost portfolio construction/rebalancing problem under nonconvex transaction costs and minimal transaction unit constraints. Recently, we proposed a branch and bound algorithm for solving a concave cost portfolio optimization problem under the mean-absolute deviation framework. We used a piecewise linear underestimating function for the nonconvex cost function and solved the resulting linear subproblems in a branch and bound method using a well-designed problem reduction technique. We showed that this algorithm generates an ε-optimal solution in a very efficient manner. We formulate the rebalancing problem as the piecewise-concave cost minimization problem and apply a similar branch and bound algorithm using a piecewise linear convex underestimation strategy. Also, we extend this algorithm to a more difficult class of problems where the transaction cost is a DC function and the amount of transaction is constrained to be an integer multiple of minimal transaction unit. The problem thus becomes a nonconvex minimization problem with integer constraints on the variables
Keywords :
financial data processing; investment; tree searching; DC function; branch and bound algorithm; integer constraints; minimal cost portfolio construction/rebalancing problem; minimal transaction unit constraints; nonconvex transaction cost; optimal portfolio construction; optimal portfolio rebalancing; piecewise linear convex underestimation strategy; piecewise-concave cost minimization problem; Asset management; Cost function; Engineering management; Financial management; Industrial engineering; Linear programming; Marketing and sales; Piecewise linear techniques; Portfolios; Technology management;
fLanguage :
English
Publisher :
ieee
Conference_Titel :
Computational Intelligence for Financial Engineering, 2000. (CIFEr) Proceedings of the IEEE/IAFE/INFORMS 2000 Conference on
Conference_Location :
New York, NY
Print_ISBN :
0-7803-6429-5
Type :
conf
DOI :
10.1109/CIFER.2000.844595
Filename :
844595
Link To Document :
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