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Author: Jan Palczewski Publisher: ISBN: Category : Languages : en Pages : 38
Book Description
We present an efficient numerical method to determine optimal portfolio strategies under time- and state-dependent drift and proportional transaction costs. This scenario arises when investors have behavioral biases or the actual drift is unknown and needs to be estimated. The numerical method solves dynamic optimal portfolio problems for time-horizons of up to 40 years. It is applied to measure the value of information and the loss from transaction costs using the indifference principle.
Author: Jan Palczewski Publisher: ISBN: Category : Languages : en Pages : 38
Book Description
We present an efficient numerical method to determine optimal portfolio strategies under time- and state-dependent drift and proportional transaction costs. This scenario arises when investors have behavioral biases or the actual drift is unknown and needs to be estimated. The numerical method solves dynamic optimal portfolio problems for time-horizons of up to 40 years. It is applied to measure the value of information and the loss from transaction costs using the indifference principle.
Author: Xin Guo Publisher: CRC Press ISBN: 1498706495 Category : Business & Economics Languages : en Pages : 357
Book Description
The first part of this book discusses institutions and mechanisms of algorithmic trading, market microstructure, high-frequency data and stylized facts, time and event aggregation, order book dynamics, trading strategies and algorithms, transaction costs, market impact and execution strategies, risk analysis, and management. The second part covers market impact models, network models, multi-asset trading, machine learning techniques, and nonlinear filtering. The third part discusses electronic market making, liquidity, systemic risk, recent developments and debates on the subject.
Author: Rongju Zhang Publisher: ISBN: Category : Languages : en Pages : 27
Book Description
We present a simulation-and-regression method for solving dynamic portfolio optimization problems in the presence of general transaction costs, liquidity costs and market impact. This method extends the classical least squares Monte Carlo algorithm to incorporate switching costs, corresponding to transaction costs and transient liquidity costs, as well as multiple endogenous state variables, namely the portfolio value and the asset prices subject to permanent market impact. To handle endogenous state variables, we adapt a control randomization approach to portfolio optimization problems and further improve the numerical accuracy of this technique for the case of discrete controls. We validate our modified numerical method by solving a realistic cash-and-stock portfolio with a power-law liquidity model. We identify the certainty equivalent losses associated with ignoring liquidity effects, and illustrate how our dynamic optimization method protects the investor's capital under illiquid market conditions. Lastly, we analyze, under different liquidity conditions, the sensitivities of certainty equivalent returns and optimal allocations with respect to trading volume, stock price volatility, initial investment amount, risk aversion level and investment horizon.
Author: Christoph Belak Publisher: ISBN: Category : Languages : en Pages :
Book Description
We study optimal asset allocation in a crash-threatened financial market with proportional transaction costs. The market is assumed to be in either a normal state, in which the risky asset follows a geometric Brownian motion, or in a crash state, in which the price of the risky asset can suddenly drop by a certain relative amount. We only assume the maximum number and the maximum relative size of the crashes to be given and do not make any assumptions about their distributions. For every investment strategy, we identify the worst-case scenario in the sense that the expected utility of terminal wealth is minimized. The objective is then to determine the investment strategy which yields the highest expected utility in its worst-case scenario.We solve the problem for utility functions with constant relative risk aversion using a stochastic control approach. We characterize the value function as the unique viscosity solution of a second-order nonlinear partial differential equation. The optimal strategies are characterized by time-dependent free boundaries which we compute numerically. The numerical examples suggest that it is not optimal to invest any wealth in the risky asset close to the investment horizon, while a long position in the risky asset is optimal if the remaining investment period is sufficiently large.
Author: Yongyang Cai Publisher: ISBN: Category : Economics Languages : en Pages : 0
Book Description
We apply numerical dynamic programming to multi-asset dynamic portfolio optimization problems with proportional transaction costs. Examples include problems with one safe asset plus two to six risky stocks, and seven to 360 trading periods in a finite horizon problem. These examples show that it is now tractable to solve such problems.
Author: Thamayanthi Chellathurai Publisher: National Library of Canada = Bibliothèque nationale du Canada ISBN: 9780612829787 Category : Languages : en Pages : 390
Author: Victor DeMiguel Publisher: ISBN: Category : Languages : en Pages : 48
Book Description
We analyze the optimal portfolio policy for a multiperiod mean-variance investor facing a large number of risky assets in the presence of general transaction cost. For proportional transaction costs, we give a closed-form expression for a no-trade region, shaped as a multi-dimensional parallelogram, and show how the optimal portfolio policy can be efficiently computed by solving a single quadratic program. For market impact costs, we show that at each period it is optimal to trade to the boundary of a state-dependent rebalancing region. Finally, we show empirically that the utility loss associated with ignoring transaction costs may be large.
Author: Jan Palczewski
Author: Jan Palczewski
Author: Xin Guo
Author: Rongju Zhang
Author: Christoph Belak
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Author: Thamayanthi Chellathurai
Author: 
Author: Victor DeMiguel
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