A simple algorithm to incorporate transactions costs in quadratic optimization
type: Item
instance of: scholarly article
title: A simple algorithm to incorporate transactions costs in quadratic optimization
zbMATH Open document ID: 0837.90010
DOI: 10.1016/0377-2217(94)90397-2
author: C. J. Adcock
author: Nigel Meade
published in: European Journal of Operational Research
publication date: 1996-05-12T00:00:00Z
review text: 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 minimize a combined quadratic and modulus function. This paper presents a new approach to deal with the minimization 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.
Mathematics Subject Classification ID: 91B28
Mathematics Subject Classification ID: 90C90
Mathematics Subject Classification ID: 90C20
zbMATH DE Number: 709929
zbMATH Keywords: finance
zbMATH Keywords: portfolio selection
zbMATH Keywords: minimum absolute deviations
zbMATH Keywords: portfolio performance
zbMATH Keywords: transaction cost
zbMATH Keywords: tactical asset allocation
zbMATH Keywords: equity index tracking fund
reviewed by: Mikulas Luptacik
MaRDI profile type: Publication
full work available at URL: 0377-2217(94)90397-2
OpenAlex ID: W2086705997
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description: scientific article; zbMATH DE number 709929