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A Multi-objective Approach to Multi-period: Portfolio Optimization with Transaction Costs

  • Marius RadulescuEmail author
  • Constanta Zoie Radulescu
Chapter
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Part of the Multiple Criteria Decision Making book series (MCDM)

Abstract

Portfolio optimization with transaction costs is a problem that involves non-smooth functions.

Transaction costs on each asset are usually assumed to be convex functions of the amount sold or bought. These functions can be non-differentiable in a finite number of points. In this chapter we intend to extend Markowitz’s portfolio selection model to multi-period models which include proportional transaction costs in the presence of initial holdings for the investor. Our approach is a novel one. We do research on an investor issue applicable to a business person who has some initial holdings and knows within the envisaged time frame the outbound and inbound cash flows as well as the exact points in time when these financial flows will occur.

A multi-period portfolio selection problem as a multi-objective programming problem with complementarity constraints is formulated. We prove that the above model is equivalent with a mixed-binary model. A goal programming approach to the multi-period multi-objective problem for portfolio selection is studied. In order to include the investor’s preferences, satisfaction functions are considered.

Keywords

Portfolio optimization Multi-objective Multi-period Transaction costs Complementarity constraints 

Notes

Acknowledgements

This work was supported by a grant of the Romanian National Authority for Scientific Research, CNCS—UEFISCDI, project number PN-II-ID-PCE-2011-3-0908.

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Copyright information

© Springer International Publishing AG 2018

Authors and Affiliations

  1. 1.Institute of Mathematical Statistics and Applied MathematicsOrganization Romanian AcademyBucharest 5Romania
  2. 2.National Institute for Research and Development in InformaticsBucharest 1Romania

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