Optimal Rebalancing Frequencies for Multidimensional Portfolios

Abstract

We study optimal investment with multiple assets in the presence of small proportional transaction costs. Rather than computing an asymptotically optimal no-trade region, we optimize over suitable trading frequencies. We derive explicit formulas for these and the associated welfare losses due to small transaction costs in a general, multidimensional diffusion setting, and compare their performance to a number of alternatives using Monte Carlo simulations.

25 pages, 1 figure, to appear in "Mathematics and Financial Economics"