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A New Portfolio Rebalancing Model with Transaction Costs

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  • Meihua Wang
  • Cheng Li
  • Honggang Xue
  • Fengmin Xu

Abstract

A portfolio rebalancing model with self-finance strategy and consideration of V-shaped transaction cost is presented in this paper. Our main contribution is that a new constraint is introduced to confirm that the rebalance necessity of the existing portfolio needs to be adjusted. The constraint is constructed by considering both the transaction amount and transaction cost without any additional supply to the investment amount. The V-shaped transaction cost function is used to calculate the transaction cost of the portfolio, and conditional value at risk (CVaR) is used to measure the risk of the portfolios. Computational tests on practical financial data show that the proposed model is effective and the rebalanced portfolio increases the expected return of the portfolio and reduces the CVaR risk of the portfolio.

Suggested Citation

  • Meihua Wang & Cheng Li & Honggang Xue & Fengmin Xu, 2014. "A New Portfolio Rebalancing Model with Transaction Costs," Journal of Applied Mathematics, Hindawi, vol. 2014, pages 1-7, April.
    • Handle: RePEc:hin:jnljam:942374
    DOI: 10.1155/2014/942374
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    Cited by:

    1. Luis Lorenzo & Javier Arroyo, 2023. "Online risk-based portfolio allocation on subsets of crypto assets applying a prototype-based clustering algorithm," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-40, December.
    2. Mostafa Zandieh & Seyed Omid Mohaddesi, 2018. "Portfolio Rebalancing under Uncertainty Using Meta-heuristic Algorithm," Papers 1812.07635, arXiv.org.

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