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Listen "Ep. 5: Discrete Portfolio Adjustment with Fixed Transaction Costs"
Episode Synopsis
Professor Linus Wilson reads his paper "Discrete Portfolio Adjustment with Fixed Transaction Costs"
Suggested Citation:
Wilson, Linus, Discrete Portfolio Adjustment with Fixed Transaction Costs (January 3, 2016). Available at SSRN: https://ssrn.com/abstract=2406021 or http://dx.doi.org/10.2139/ssrn.2406021
Abstract
This paper presents a closed form solution to the portfolio adjustment problem in discrete time when the investor faces fixed transaction costs. This transaction cost model assumes a mean-variance investor who wants to adjust her holdings of a risky and risk-free asset. It is shown how this model can be calibrated to be used with a variety of risk models such as life cycle portfolio weights and value at risk (VaR) models. The decision problem can easily be inputted into and calculated in Excel.
Keywords: adjustment costs, alpha models, brokerage commissions, fixed costs, lifecycle funds, portfolio selection, portfolio theory, risk management, transaction costs, Value at Risk (VaR)
JEL Classification: G11
Click the orange download button to get the full paper on SSRN.
Suggested Citation:
Wilson, Linus, Discrete Portfolio Adjustment with Fixed Transaction Costs (January 3, 2016). Available at SSRN: https://ssrn.com/abstract=2406021 or http://dx.doi.org/10.2139/ssrn.2406021
Abstract
This paper presents a closed form solution to the portfolio adjustment problem in discrete time when the investor faces fixed transaction costs. This transaction cost model assumes a mean-variance investor who wants to adjust her holdings of a risky and risk-free asset. It is shown how this model can be calibrated to be used with a variety of risk models such as life cycle portfolio weights and value at risk (VaR) models. The decision problem can easily be inputted into and calculated in Excel.
Keywords: adjustment costs, alpha models, brokerage commissions, fixed costs, lifecycle funds, portfolio selection, portfolio theory, risk management, transaction costs, Value at Risk (VaR)
JEL Classification: G11
Click the orange download button to get the full paper on SSRN.
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