A compromise solution to mutual funds portfolio selection with transaction costs

Yusen Xia; Shouyang Wang; Xiaotie Deng

doi:10.1016/S0377-2217(00)00278-2

A compromise solution to mutual funds portfolio selection with transaction costs

Yusen Xia
, Shouyang Wang
, Xiaotie Deng

Department of Computer Science

Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review

25 Citations (Scopus)

Abstract

This paper considers the portfolio selection problem with transaction costs which are assumed to be a V-shaped function of the difference between an existing portfolio and a new one. Under some assumptions on the variance-covariance matrix of returns, we derive a compromise solution to this portfolio selection problem by solving a linear program. The compromise solution is then extended to include a riskless asset which allows short sale. We also compare the results of our compromise solution with results derived by the direct utility function method, which is solved by a specially designed genetic algorithm in this paper. Results show that the expected return and the standard deviation of the compromise solution are both smaller than those solutions from the direct utility function method. © 2001 Elsevier Science B.V. All rights reserved.

Original language	English
Pages (from-to)	564-581
Journal	European Journal of Operational Research
Volume	134
Issue number	3
DOIs	https://doi.org/10.1016/S0377-2217(00)00278-2
Publication status	Published - 1 Nov 2001

Bibliographical note

Publication details (e.g. title, author(s), publication statuses and dates) are captured on an “AS IS” and “AS AVAILABLE” basis at the time of record harvesting from the data source. Suggestions for further amendments or supplementary information can be sent to [email protected].

Funding

Partially supported by the National Natural Science Foundation of China, CAS and a strategic research grant of City University of Hong Kong #7000763. The authors are grateful to the referees for their valuable comments and suggestions. The present version of the manuscript was completed during the second author's stay at Institute of Policy and Planning Sciences, University of Tsukuba, Japan.

Research Keywords

Compromise solution
Direct utility method
Genetic algorithm
Portfolio selection
Transaction cost

Access Output

10.1016/S0377-2217(00)00278-2

Other Access Options

Check CityUHK Library

Permanent Link

Right click to copy link

Cite this

@article{4132ec51ea5040b592e3ed6957aa4bd7,

title = "A compromise solution to mutual funds portfolio selection with transaction costs",

abstract = "This paper considers the portfolio selection problem with transaction costs which are assumed to be a V-shaped function of the difference between an existing portfolio and a new one. Under some assumptions on the variance-covariance matrix of returns, we derive a compromise solution to this portfolio selection problem by solving a linear program. The compromise solution is then extended to include a riskless asset which allows short sale. We also compare the results of our compromise solution with results derived by the direct utility function method, which is solved by a specially designed genetic algorithm in this paper. Results show that the expected return and the standard deviation of the compromise solution are both smaller than those solutions from the direct utility function method. {\textcopyright} 2001 Elsevier Science B.V. All rights reserved.",

keywords = "Compromise solution, Direct utility method, Genetic algorithm, Portfolio selection, Transaction cost",

author = "Yusen Xia and Shouyang Wang and Xiaotie Deng",

note = "Publication details (e.g. title, author(s), publication statuses and dates) are captured on an “AS IS” and “AS AVAILABLE” basis at the time of record harvesting from the data source. Suggestions for further amendments or supplementary information can be sent to [email protected].",

year = "2001",

month = nov,

day = "1",

doi = "10.1016/S0377-2217(00)00278-2",

language = "English",

volume = "134",

pages = "564--581",

journal = "European Journal of Operational Research",

issn = "0377-2217",

publisher = "Elsevier B.V.",

number = "3",

}

TY - JOUR

T1 - A compromise solution to mutual funds portfolio selection with transaction costs

AU - Xia, Yusen

AU - Wang, Shouyang

AU - Deng, Xiaotie

N1 - Publication details (e.g. title, author(s), publication statuses and dates) are captured on an “AS IS” and “AS AVAILABLE” basis at the time of record harvesting from the data source. Suggestions for further amendments or supplementary information can be sent to [email protected].

PY - 2001/11/1

Y1 - 2001/11/1

N2 - This paper considers the portfolio selection problem with transaction costs which are assumed to be a V-shaped function of the difference between an existing portfolio and a new one. Under some assumptions on the variance-covariance matrix of returns, we derive a compromise solution to this portfolio selection problem by solving a linear program. The compromise solution is then extended to include a riskless asset which allows short sale. We also compare the results of our compromise solution with results derived by the direct utility function method, which is solved by a specially designed genetic algorithm in this paper. Results show that the expected return and the standard deviation of the compromise solution are both smaller than those solutions from the direct utility function method. © 2001 Elsevier Science B.V. All rights reserved.

AB - This paper considers the portfolio selection problem with transaction costs which are assumed to be a V-shaped function of the difference between an existing portfolio and a new one. Under some assumptions on the variance-covariance matrix of returns, we derive a compromise solution to this portfolio selection problem by solving a linear program. The compromise solution is then extended to include a riskless asset which allows short sale. We also compare the results of our compromise solution with results derived by the direct utility function method, which is solved by a specially designed genetic algorithm in this paper. Results show that the expected return and the standard deviation of the compromise solution are both smaller than those solutions from the direct utility function method. © 2001 Elsevier Science B.V. All rights reserved.

KW - Compromise solution

KW - Direct utility method

KW - Genetic algorithm

KW - Portfolio selection

KW - Transaction cost

UR - https://www.scopus.com/pages/publications/0035501903#tab=impact

UR - https://www.scopus.com/pages/publications/0035501903

U2 - 10.1016/S0377-2217(00)00278-2

DO - 10.1016/S0377-2217(00)00278-2

M3 - RGC 21 - Publication in refereed journal

SN - 0377-2217

VL - 134

SP - 564

EP - 581

JO - European Journal of Operational Research

JF - European Journal of Operational Research

IS - 3

ER -

A compromise solution to mutual funds portfolio selection with transaction costs

Abstract

Bibliographical note

Funding

Research Keywords

Access Output

Other Access Options

Permanent Link

Other Files and Links

Fingerprint

Cite this