Portfolio optimization with transaction costs and preconceived portfolio weights
Thesis (M. Eng.)--Massachusetts Institute of Technology, Dept. of Electrical Engineering and Computer Science, 2009.
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| Other Authors: | |
| Format: | Thesis |
| Language: | eng |
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Massachusetts Institute of Technology
2011
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| Online Access: | http://hdl.handle.net/1721.1/61296 |
| _version_ | 1811098019328688128 |
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| author | Myers, Jeremy D. (Jeremy Dale) |
| author2 | Leonid Kogan. |
| author_facet | Leonid Kogan. Myers, Jeremy D. (Jeremy Dale) |
| author_sort | Myers, Jeremy D. (Jeremy Dale) |
| collection | MIT |
| description | Thesis (M. Eng.)--Massachusetts Institute of Technology, Dept. of Electrical Engineering and Computer Science, 2009. |
| first_indexed | 2024-09-23T17:08:40Z |
| format | Thesis |
| id | mit-1721.1/61296 |
| institution | Massachusetts Institute of Technology |
| language | eng |
| last_indexed | 2024-09-23T17:08:40Z |
| publishDate | 2011 |
| publisher | Massachusetts Institute of Technology |
| record_format | dspace |
| spelling | mit-1721.1/612962019-04-12T16:02:04Z Portfolio optimization with transaction costs and preconceived portfolio weights Myers, Jeremy D. (Jeremy Dale) Leonid Kogan. Massachusetts Institute of Technology. Dept. of Electrical Engineering and Computer Science. Massachusetts Institute of Technology. Dept. of Electrical Engineering and Computer Science. Electrical Engineering and Computer Science. Thesis (M. Eng.)--Massachusetts Institute of Technology, Dept. of Electrical Engineering and Computer Science, 2009. Cataloged from PDF version of thesis. Includes bibliographical references (p. 87-88). In the financial world, many quantitative investment managers have developed sophisticated statistical techniques to generate signals about expected returns from previous market data. However, the manner in which they apply this information to rebalancing their portfolios is often ad-hoc, trading off between rebalancing their assets into an allocation that generates the greatest expected return based on the generated signals and the incurred transaction costs that the reallocation will require. In this thesis, we develop an approximation to our investor's true value function which incorporates both return predictability and transaction costs. By optimizing our approximate value function at each time step, we will generate a portfolio strategy that closely emulates the optimal portfolio strategy, which is based on the true value function. In order to determine the optimal set of parameters for our approximate function which will generate the best overall portfolio performance, we develop a simulation-based method. Our computational implementation is verified against well-known base cases. We determine the optimal parameters for our approximate function in the single stock and bond case. In addition, we determine a confidence level on our simulation results. Our approximate function gives us useful insight into the optimal portfolio allocation in complex higher dimensional cases. Our function derivation and simulation methodology extend easily to portfolio allocation in higher dimensional cases, and we implement the modifications required to run these simulations. Simple cases are tested and more complex tests are specified for testing when appropriate dedicated computing resources are available. by Jeremy D. Myers. M.Eng. 2011-02-23T15:00:37Z 2011-02-23T15:00:37Z 2009 2009 Thesis http://hdl.handle.net/1721.1/61296 702644615 eng M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission. http://dspace.mit.edu/handle/1721.1/7582 88 p. application/pdf Massachusetts Institute of Technology |
| spellingShingle | Electrical Engineering and Computer Science. Myers, Jeremy D. (Jeremy Dale) Portfolio optimization with transaction costs and preconceived portfolio weights |
| title | Portfolio optimization with transaction costs and preconceived portfolio weights |
| title_full | Portfolio optimization with transaction costs and preconceived portfolio weights |
| title_fullStr | Portfolio optimization with transaction costs and preconceived portfolio weights |
| title_full_unstemmed | Portfolio optimization with transaction costs and preconceived portfolio weights |
| title_short | Portfolio optimization with transaction costs and preconceived portfolio weights |
| title_sort | portfolio optimization with transaction costs and preconceived portfolio weights |
| topic | Electrical Engineering and Computer Science. |
| url | http://hdl.handle.net/1721.1/61296 |
| work_keys_str_mv | AT myersjeremydjeremydale portfoliooptimizationwithtransactioncostsandpreconceivedportfolioweights |