Optimization of a Long-Short Portfolio under Nonconvex Transaction Cost

Authors:
Hiroshi Konno;Keisuke Akishino;Rei Yamamoto
Affiliations:
Department of Industrial and Systems Engineering, Chuo University, Tokyo, Japan;Department of Industrial and Systems Engineering, Chuo University, Tokyo, Japan;Department of Industrial and Systems Engineering, Chuo University, Tokyo, Japan
Venue:
Computational Optimization and Applications
Year:
2005

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Abstract

The purpose of this paper is to propose a practical branch and bound algorithm for solving a class of long-short portfolio optimization problem with concave and d.c. transaction cost and complementarity conditions on the variables.We will show that this algorithm can solve a problem of practical size and that the long-short strategy leads to a portfolio with significantly better risk-return structure compared with standard purchase only portfolio both in terms of ex-ante and ex-post performance.