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Correlated multi-asset portfolio optimisation with transaction cost

Author

Listed:
  • Siu Lung Law
  • Chiu Fan Lee
  • Sam Howison
  • Jeff N. Dewynne

Abstract

We employ perturbation analysis technique to study multi-asset portfolio optimisation with transaction cost. We allow for correlations in risky assets and obtain optimal trading methods for general utility functions. Our analytical results are supported by numerical simulations in the context of the Long Term Growth Model.

Suggested Citation

  • Siu Lung Law & Chiu Fan Lee & Sam Howison & Jeff N. Dewynne, 2007. "Correlated multi-asset portfolio optimisation with transaction cost," Papers 0705.1949, arXiv.org, revised May 2009.
    • Handle: RePEc:arx:papers:0705.1949
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    References listed on IDEAS

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    1. Atkins, Allen B & Dyl, Edward A, 1997. "Transactions Costs and Holding Periods for Common Stocks," Journal of Finance, American Finance Association, vol. 52(1), pages 309-325, March.
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    3. Andrew J. Morton & Stanley R. Pliska, 1995. "Optimal Portfolio Management With Fixed Transaction Costs," Mathematical Finance, Wiley Blackwell, vol. 5(4), pages 337-356, October.
    4. A. E. Whalley & P. Wilmott, 1997. "An Asymptotic Analysis of an Optimal Hedging Model for Option Pricing with Transaction Costs," Mathematical Finance, Wiley Blackwell, vol. 7(3), pages 307-324, July.
    5. C. Atkinson & S. Mokkhavesa, 2003. "Intertemporal portfolio optimization with small transaction costs and stochastic variance," Applied Mathematical Finance, Taylor & Francis Journals, vol. 10(4), pages 267-302.
    6. M. H. A. Davis & A. R. Norman, 1990. "Portfolio Selection with Transaction Costs," Mathematics of Operations Research, INFORMS, vol. 15(4), pages 676-713, November.
    7. Colin Atkinson & Sutee Mokkhavesa, 2001. "Towards the determination of utility preference from optimal portfolio selections," Applied Mathematical Finance, Taylor & Francis Journals, vol. 8(1), pages 1-26.
    8. C. Atkinson & B. Al-Ali, 1997. "On an investment-consumption model with transaction costs: an asymptotic analysis," Applied Mathematical Finance, Taylor & Francis Journals, vol. 4(2), pages 109-133.
    9. C. Atkinson & P. Wilmott, 1995. "Portfolio Management With Transaction Costs: An Asymptotic Analysis Of The Morton And Pliska Model," Mathematical Finance, Wiley Blackwell, vol. 5(4), pages 357-367, October.
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