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Multi-asset portfolio optimization with transaction cost


  • C. Atkinson
  • S. Mokkhavesa


The inclusion of transaction costs in the optimal portfolio selection and consumption rule problem is accomplished via the use of perturbation analyses. The portfolio under consideration consists of more than one risky asset, which makes numerical methods impractical. The objective is to establish both the transaction and the no-transaction regions that characterize the optimal investment strategy. The optimal transaction boundaries for two and three risky assets portfolios are solved explicitly. A procedure for solving the N risky assets portfolio is described. The formulation used also reduces the restriction on the functional form of the utility preference.

Suggested Citation

  • C. Atkinson & S. Mokkhavesa, 2004. "Multi-asset portfolio optimization with transaction cost," Applied Mathematical Finance, Taylor & Francis Journals, vol. 11(2), pages 95-123.
  • Handle: RePEc:taf:apmtfi:v:11:y:2004:i:2:p:95-123 DOI: 10.1080/13504860410001693496

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    References listed on IDEAS

    1. Lucas, Andre & Klaassen, Pieter & Spreij, Peter & Straetmans, Stefan, 2001. "An analytic approach to credit risk of large corporate bond and loan portfolios," Journal of Banking & Finance, Elsevier, vol. 25(9), pages 1635-1664, September.
    2. Bangia, Anil & Diebold, Francis X. & Kronimus, Andre & Schagen, Christian & Schuermann, Til, 2002. "Ratings migration and the business cycle, with application to credit portfolio stress testing," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 445-474, March.
    3. Gordy, Michael B., 2000. "A comparative anatomy of credit risk models," Journal of Banking & Finance, Elsevier, vol. 24(1-2), pages 119-149, January.
    4. Mark Carey, 1998. "Credit Risk in Private Debt Portfolios," Journal of Finance, American Finance Association, vol. 53(4), pages 1363-1387, August.
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    Cited by:

    1. Mark Broadie & Weiwei Shen, 2016. "High-Dimensional Portfolio Optimization With Transaction Costs," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 19(04), pages 1-49, June.
    2. repec:wsi:ijtafx:v:20:y:2017:i:01:n:s0219024917500042 is not listed on IDEAS
    3. H. Mete Soner & Nizar Touzi, 2012. "Homogenization and asymptotics for small transaction costs," Papers 1202.6131,, revised Jun 2013.
    4. David Hobson & Yeqi Zhu, 2014. "Multi-asset consumption-investment problems with infinite transaction costs," Papers 1409.8037,
    5. Bruno Bouchard & Ludovic Moreau & Mete Soner, 2016. "Hedging under an expected loss constraint with small transaction costs," Post-Print hal-00863562, HAL.
    6. Yu, Jing-Rung & Chiou, Wan-Jiun Paul & Mu, Da-Ren, 2015. "A linearized value-at-risk model with transaction costs and short selling," European Journal of Operational Research, Elsevier, vol. 247(3), pages 872-878.
    7. Dylan Possamai & H. Mete Soner & Nizar Touzi, 2012. "Homogenization and asymptotics for small transaction costs: the multidimensional case," Papers 1212.6275,, revised Jan 2013.
    8. Bruno Bouchard & Ludovic Moreau & Mete H. Soner, 2013. "Hedging under an expected loss constraint with small transaction costs," Papers 1309.4916,, revised Sep 2014.
    9. Dylan Possamai & Guillaume Royer, 2014. "General indifference pricing with small transaction costs," Papers 1401.3261,, revised Apr 2015.

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