Rebalance schedule optimization of a large scale portfolio under transaction cost

Rei Yamamoto, Hiroshi Konno

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

This paper is concerned with an optimization problem associated with a rebalancing schedule of a large scale fund subject to nonconvex transaction cost. We will formulate this problem as a 0-1 mixed integer programming problem under linear constraints using absolute deviation as the measure of risk. This problem can be solved by an integer programming software if the size of the universe is small. However, it is still beyond the reach of the state-of-the-art technology to solve a large scale rebalancing problem. We will show that we can now solve these problems almost exactly within a practical amount of time by using an elaborate heuristic approach.

Original languageEnglish
Pages (from-to)26-37
Number of pages12
JournalJournal of the Operations Research Society of Japan
Volume56
Issue number1
DOIs
Publication statusPublished - 2013 Jan 1
Externally publishedYes

Keywords

  • 0-1 Integer programming
  • Absolute deviation
  • Finance
  • Gradual rebalance
  • Market impact cost
  • Rebalance schedule
  • Transaction cost

ASJC Scopus subject areas

  • Decision Sciences(all)
  • Management Science and Operations Research

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