NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Numerical Solution of Dynamic Portfolio Optimization with Transaction Costs

Yongyang Cai, Kenneth L. Judd, Rong Xu

NBER Working Paper No. 18709
Issued in January 2013
NBER Program(s):   TWP

We apply numerical dynamic programming to multi-asset dynamic portfolio optimization problems with proportional transaction costs. Examples include problems with one safe asset plus two to six risky stocks, and seven to 360 trading periods in a finite horizon problem. These examples show that it is now tractable to solve such problems.

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