A Simple Algorithm for Optimal Portfolio Selection with Fixed Transaction Costs

The general optimal portfolio selection problem with fixed transaction costs is a complex mathematical programming problem. However, by placing reasonable restrictions on the variance-covariance matrix of returns, it is possible to simplify the solution of the problem. Specifically if the structure of returns between securities is such that the pairwise correlation coefficients are approximately the same, a fairly simple algorithm which requires little computational effort can be employed. This method can also be extended to the case where changes in the information set necessitate a revision of an existing portfolio.

• 저널Management Science · 28(3) · 303–314
• 토픽Financial Markets and Investment Strategies · Finance
• DOI10.1287/mnsc.28.3.303
• 저자Nitin R. Patel, Marti G. Subrahmanyam