Dealing with complex transaction costs in portfolio management

This paper deals with the problem of modelling complex transaction cost structures within portfolio management models in an efficient and effective way. We consider a general structure of transaction costs, where the applied commissions depend on the range of traded monetary amount and we use this g...

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Vydáno v:Annals of operations research Ročník 299; číslo 1-2; s. 7 - 22
Hlavní autoři: Beraldi, Patrizia, Violi, Antonio, Ferrara, Massimiliano, Ciancio, Claudio, Pansera, Bruno Antonio
Médium: Journal Article
Jazyk:angličtina
Vydáno: New York Springer US 01.04.2021
Springer
Springer Nature B.V
Témata:
Branch and bound methods
Business and Management
Combinatorial optimization
Combinatorics
Computing time
Costs
Economic conditions
Institutional investments
Management
Methods
Mixed integer
Operations research
Operations Research/Decision Theory
Optimization
Portfolio management
Portfolio performance
S.I.: Recent Developments in Financial Modeling and Risk Management
Technology application
Theory of Computation
Transaction costs
Italy
Complex transaction costs
Branch and bound method
Portfolio management
ISSN:0254-5330, 1572-9338
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Shrnutí:This paper deals with the problem of modelling complex transaction cost structures within portfolio management models in an efficient and effective way. We consider a general structure of transaction costs, where the applied commissions depend on the range of traded monetary amount and we use this general structure within a portfolio optimization problem with rebalancing decisions in response to new market conditions. The presence of transaction costs reduces the fund’s capital and should be properly accounted for to avoid substantial costs that impact on portfolio performance. In this paper we present a mixed integer model equipped with a specialized Branch and Bound method that exploits the specific formulation of the trading operations. Computational experiments, carried out on transaction cost structures offered by real-life traders, have shown the effectiveness of the proposed model and the computational efficiency of the solution approach.
Bibliografie:ObjectType-Article-1
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ISSN:0254-5330
1572-9338
DOI:10.1007/s10479-019-03210-5