Numerical Solution of Dynamic Portfolio Optimization with Transaction Costs
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.
Cai and Judd gratefully acknowledge NSF support (SES-0951576) We thank Walter Murray, Michael Saunders, Sunil Kumar, Benjamin Van Roy and Gerd Infanger for comments on earlier versions of this work. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.