Mean-variance portfolio optimization with fixed transaction costs for the small investor
Independent thesis Basic level (degree of Bachelor), 10 credits / 15 HE creditsStudent thesis
The mean-variance portfolio optimization is a widely used technique for finding an efficient allocation of assets in a portfolio. Transaction costs are neglected in the original formulation. Little research has been paid to investigate how to adjust for transaction costs that are representative for the small investor. In this thesis is a framework derived which adjust for fixed transaction costs that represent the minimum brokerage fee. The model is tested on theoretical data for five assets. The result is that expected risk-adjusted return is overestimated when transaction costs are not taken into account. It is also shown that the magnitude of the overestimation is dependent on the invested value.
Place, publisher, year, edition, pages
Mean-variance optimization, Portfolio rebalancing, Portfolio selection, Transaction costs
IdentifiersURN: urn:nbn:se:uu:diva-203592OAI: oai:DiVA.org:uu-203592DiVA: diva2:637048
Lyhagen, Johan, Professor
Ohlsson, Henry, Professor