A Note on Portfolio Optimization with Quadratic Transaction Costs

- Working Paper
- EN

- Working Paper
- EN

ABSTRACT

In this short note, we consider mean-variance optimized portfolios with transaction costs. We show that introducing quadratic transaction costs makes the optimization problem more difficult than using linear transaction costs. The reason lies in the specification of the budget constraint, which is no longer linear. We provide numerical algorithms for solving this issue and illustrate how transaction costs may considerably impact the expected returns of optimized portfolios.

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Authors

Pierre CHEN

Quantitative Research

Edmond LEZMI

Head of Alternative Quant Portfolio Strategy, Amundi Investment Institute

Thierry RONCALLI

PhD, Head of Quant Portfolio Strategy, Amundi Investment Institute

Jiali XU

Alternative Quant Portfolio Strategy, Amundi Investment Institute

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A Note on Portfolio Optimization with Quadratic Transaction Costs

ABSTRACT

To find out more, download the full paper

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