A linear programming algorithm for optimal portfolio selection with transaction costs

Zhongfei Li · Shouyang Wang · Xiaotie Deng

42 citations0/0 files storedInternational Journal of Systems Science

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Risk and Portfolio Optimization Advanced Optimization Algorithms Research Optimization and Mathematical Programming

Abstract

We study the optimal portfolio selection problem with transaction costs. In general, the efficient frontier can be determined by solving a parametric non-quadratic programming problem. In a general setting, the transaction cost is a V-shaped function of difference between the existing and the new portfolio. We show how to transform this problem into a quadratic programming model. Hence a linear programming algorithm is applicable by establishing a linear approximation on the utility function of return and variance.

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2013International portfolio choice and political instability risk: A multi-objective approach

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