Adcock, C.J. and Meade, N. (1994) A simple algorithm to incorporate transactions costs in quadratic optimisation. European Journal of Operational Research, 79 (1). pp. 85-94. ISSN 0377-2217
Quantitative fund management invariably involves portfolio performance being measured in terms of a quadratic objective function (due to the inclusion of variance terms as a measure of risk). Periodically, the constituents of the fund are adjusted to improve performance. This adjustment incurs a transaction cost which is a modulus function of the changes in holdings. Thus the fund manager wishes to minimise a combined quadratic and modulus function. This paper presents a new approach to deal with the minimisation of this hybrid function, using a well tried quadratic programming algorithm. The new algorithm is demonstrated using a tactical asset allocation problem and an equity index tracking fund.
|Keywords:||Finance; Quadratic programming; Portfolio selection; MAD estimation|
|Institution:||The University of Sheffield|
|Academic Units:||The University of Sheffield > Faculty of Social Sciences (Sheffield) > Sheffield University Management School|
|Depositing User:||Miss Anthea Tucker|
|Date Deposited:||21 Jun 2010 15:09|
|Last Modified:||21 Jun 2010 15:09|