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Numerical perspectives on the rebalancing premium

Author

Listed:
  • Jean-Michel Maeso
  • Gregory Gadzinski
  • Lionel Martellini
  • Vincent Milhau

Abstract

This article provides a comprehensive mathematical and numerical analysis of the rebalancing premium, defined as the additional performance of a rebalanced portfolio over a corresponding buy-and-hold portfolio. We contribute to the existing literature by providing a quantitative perspective on portfolio rebalancing and its potential to enhance long-term investment outcomes. Using analytical expressions and Monte Carlo simulations, we first explore key performance metrics, including the expected growth rates, Sharpe ratios, and the probability of outperformance. Our analysis indicates that the rebalancing premium is typically modest, remaining below 50 basis points annually under realistic parameter values. We show, theoretically and numerically, that the results are also influenced by the serial correlation in asset returns, highlighting the importance of return dynamics in shaping rebalancing benefits.

Suggested Citation

  • Jean-Michel Maeso & Gregory Gadzinski & Lionel Martellini & Vincent Milhau, 2025. "Numerical perspectives on the rebalancing premium," Quantitative Finance, Taylor & Francis Journals, vol. 25(12), pages 2021-2034, December.
    • Handle: RePEc:taf:quantf:v:25:y:2025:i:12:p:2021-2034
    DOI: 10.1080/14697688.2025.2577822
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