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arXiv · 2003.01809

Numerical Solution of Dynamic Portfolio Optimization with Transaction Costs

Yongyang Cai·Kenneth Judd·Rong Xu
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Abstract

We apply numerical dynamic programming techniques to solve discrete-time multi-asset dynamic portfolio optimization problems with proportional transaction costs and shorting/borrowing constraints. Examples include problems with multiple assets, and many trading periods in a finite horizon problem. We also solve dynamic stochastic problems, with a portfolio including one risk-free asset, an option, and its underlying risky asset, under the existence of transaction costs and constraints. These examples show that it is now tractable to solve such problems.

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Yongyang Cai, Kenneth Judd, Rong Xu. 2020-03-03. Numerical Solution of Dynamic Portfolio Optimization with Transaction Costs. https://arxiv.org/abs/2003.01809

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