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Rebalancing with Linear and Quadratic Costs

Author

Listed:
  • Ren LIU

    (ETH Zurich)

  • Johannes MUHLE-KARBE

    (ETH Zurich and Swiss Finance Institute)

  • Marko WEBER

    (Dublin City University and Scuola Normale Superiore)

Abstract

We consider a market consisting of one safe and one risky asset, which offer constant investment opportunities. Taking into account both proportional transaction costs and linear price impact, we derive optimal rebalancing policies for representative investors with constant relative risk aversion and a long horizon.

Suggested Citation

  • Ren LIU & Johannes MUHLE-KARBE & Marko WEBER, 2014. "Rebalancing with Linear and Quadratic Costs," Swiss Finance Institute Research Paper Series 14-16, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1416
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    File URL: http://ssrn.com/abstract=2402241
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    Cited by:

    1. Filippo Passerini & Samuel E. Vazquez, 2015. "Optimal Trading with Alpha Predictors," Papers 1501.03756, arXiv.org, revised Jan 2015.
    2. Joachim de Lataillade & Ayman Chaouki, 2020. "Equations and Shape of the Optimal Band Strategy," Papers 2003.04646, arXiv.org, revised Mar 2020.
    3. Jiatu Cai & Mathieu Rosenbaum & Peter Tankov, 2015. "Asymptotic Lower Bounds for Optimal Tracking: a Linear Programming Approach," Papers 1510.04295, arXiv.org.

    More about this item

    Keywords

    price impact; transaction costs; portfolio choice; long-run;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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