Active portfolio selection with transaction cost
Date Issued
2006
Date
2006
Author(s)
Hou, Chih-Hung
DOI
zh-TW
Abstract
The paper compares the “static investment” and the “active investment”. We use the “Stochastic Portfolio Theory and Stock Market Equilibrium” ( Fernholz R. and Shay B. [1981]) to develop an active portfolio selection program. The static portfolio selection is based on Mean-Variance Model (Markowitz [1952]). Merton[1969] initiated the study of financial markets via continuous-time, from then on numerous research about active portfolio selection have begun. Analytical solutions for optimal portfolio selection problems are often available in single period. But there is no closed form for the optimal weight of active investment in multi-periods. Fernholz proved that the “excess growth” is existed in continuous time. This research is based on “stochastic portfolio theory” to construct an active portfolio selection model in continuous time. After the portfolio selection model is constructed, we use historic data to check our portfolio. Even we consider the transaction cost, the performance of our portfolios still outperforms “TSEC Taiwan 50 Index”.
Subjects
動態投資組合
隨機套利理論
active portfolio selection
Stochastic Portfolio Theory.
Type
thesis
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