Optimal investment under transaction costs: A threshold rebalanced portfolio approach

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dc.citation.epage3142en_US
dc.citation.issueNumber12en_US
dc.citation.spage3129en_US
dc.citation.volumeNumber61en_US
dc.contributor.authorTunc, S.en_US
dc.contributor.authorDonmez, M. A.en_US
dc.contributor.authorKozat, S. S.en_US
dc.date.accessioned2016-02-08T09:38:15Z
dc.date.available2016-02-08T09:38:15Z
dc.date.issued2013en_US
dc.departmentDepartment of Electrical and Electronics Engineeringen_US
dc.description.abstractWe study how to invest optimally in a financial market having a finite number of assets from a signal processing perspective. Specifically, we investigate how an investor should distribute capital over these assets and when he/she should reallocate the distribution of the funds over these assets to maximize the expected cumulative wealth over any investment period. In particular, we introduce a portfolio selection algorithm that maximizes the expected cumulative wealth in i.i.d. two-asset discrete-time markets where the market levies proportional transaction costs in buying and selling stocks. We achieve this using 'threshold rebalanced portfolios', where trading occurs only if the portfolio breaches certain thresholds. Under the assumption that the relative price sequences have log-normal distribution from the Black-Scholes model, we evaluate the expected wealth under proportional transaction costs and find the threshold rebalanced portfolio that achieves the maximal expected cumulative wealth over any investment period. Our derivations can be readily extended to markets having more than two stocks, where these extensions are provided in the paper. As predicted from our derivations, we significantly improve the achieved wealth with respect to the portfolio selection algorithms from the literature on historical data sets under both mild and heavy transaction costs.en_US
dc.description.provenanceMade available in DSpace on 2016-02-08T09:38:15Z (GMT). No. of bitstreams: 1 bilkent-research-paper.pdf: 70227 bytes, checksum: 26e812c6f5156f83f0e77b261a471b5a (MD5) Previous issue date: 2013en
dc.identifier.doi10.1109/TSP.2013.2258339en_US
dc.identifier.issn1053-587X
dc.identifier.urihttp://hdl.handle.net/11693/20935
dc.language.isoEnglishen_US
dc.publisherIEEEen_US
dc.relation.isversionofhttp://dx.doi.org/10.1109/TSP.2013.2258339en_US
dc.source.titleIEEE Transactions on Signal Processingen_US
dc.subjectContinuous distributionen_US
dc.subjectDiscrete-time marketen_US
dc.subjectPortfolio managementen_US
dc.subjectThreshold rebalancingen_US
dc.subjectContinuous distributionen_US
dc.subjectDiscrete-time marketen_US
dc.subjectPortfolio managementsen_US
dc.subjectRebalancingen_US
dc.subjectTransaction costen_US
dc.subjectAlgorithmsen_US
dc.subjectCommerceen_US
dc.subjectCostsen_US
dc.subjectFinancial data processingen_US
dc.subjectSequential switchingen_US
dc.subjectSignal processingen_US
dc.subjectInvestmentsen_US
dc.titleOptimal investment under transaction costs: A threshold rebalanced portfolio approachen_US
dc.typeArticleen_US

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