Upcoming Conferences
"Optimal Management of Portfolio Transitions"
Karl Neumar, Harvard University
http://fisher.osu.edu/fin/findir/individual.html?indivID=1235
While most academic research has focused on construction of optimal portfolios from a starting point of cash, in practical settings portfolios already hold some set of investments and will typically get rebalanced to the target optimal portfolio, i.e., a portfolio transition will occur.
Portfolio transition management is a very large industry in financial services, but very little rigorous academic work has been conducted on this subject. This paper analyzes the question of how to optimally transition a portfolio from one set of securities to a target mix of securities in the face of transaction costs (which are quantity-sensitive) and a penalty (utility) function for not holding the target portfolio. We determine the optimal transition path in this paper and show that there are five general factors that influence this path. In our practical applications we are able to identify general portfolio transition strategies in the context of equity and debt.
