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Optimal Rebalancing Frequencies for Multidimensional Portfolios

Author

Listed:
  • Johannes Muhle-Karbe

    (ETH Zurich and Swiss Finance Institute)

  • Ibrahim Ekren

    (ETH Zurich)

  • Ren Liu

    (ETH Zurich)

Abstract

We study optimal investment with multiple assets in the presence of small proportional transaction costs. Rather than computing an asymptotically optimal no-trade region, we optimize over suitable trading frequencies. We derive explicit formulas for these and the associated welfare losses due to small transaction costs in a general, multidimensional diffusion setting, and compare their performance to a number of alternatives using Monte Carlo simulations.

Suggested Citation

  • Johannes Muhle-Karbe & Ibrahim Ekren & Ren Liu, 2015. "Optimal Rebalancing Frequencies for Multidimensional Portfolios," Swiss Finance Institute Research Paper Series 15-44, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1544
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    File URL: http://ssrn.com/abstract=2675453
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    More about this item

    Keywords

    transaction costs; optimal trading frequency; optimal investment; multiple assets;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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