Journal article

Transaction fees and optimal rebalancing in the growth-optimal portfolio

  • Feng, Yu Physics Department, Renmin University, Beijing, China - Complexity Research Center, USST, Shanghai, China
  • Medo, Matúš Physics Department, University of Fribourg, Switzerland
  • Zhang, Liang Web Sciences Center, University of Electronic Science and Technology, Chengdu, China
  • Zhang, Yi-Cheng Physics Department, Renmin University, Beijing, China - Complexity Research Center, USST, Shanghai, China - Physics Department, University of Fribourg, Switzerland
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    14.01.2011
Published in:
  • Physica A: Statistical Mechanics and its Applications. - 2011, vol. 390, no. 9, p. 1635-1645
English The growth-optimal portfolio optimization strategy pioneered by Kelly is based on constant portfolio rebalancing which makes it sensitive to transaction fees. We examine the effect of fees on an example of a risky asset with a binary return distribution and show that the fees may give rise to an optimal period of portfolio rebalancing. The optimal period is found analytically in the case of lognormal returns. This result is consequently generalized and numerically verified for broad return distributions and returns generated by a GARCH process. Finally we study the case when investment is rebalanced only partially and show that this strategy can improve the investment long-term growth rate more than optimization of the rebalancing period.
Faculty
Faculté des sciences
Department
Physique
Language
  • English
Classification
Physics
License
License undefined
Identifiers
Persistent URL
https://folia.unifr.ch/unifr/documents/301845
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