STAT244.Lecture.05.06 11

STAT244.Lecture.05.06 11 - k th factor k w-w b k ≤ M ,...

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Portfolio Rebalancing I Why? New information I How? Balance between tracking error and transcation costs I Let x = w - w 0 , where w 0 is current portfolio weights and w is target weights. Constraints: w 0 , Long-only X | x i | ≤ u , Turn-over l i w i u i , Holding N X i =1 β ik w i u k , Maximum exposure to a factor N X i =1 β ik w i = 0 , Nuetral to
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Unformatted text preview: k th factor k w-w b k ≤ M , Benchmark Constraints ( w-w b ) Ω( w-w b ) ≤ σ 2 TE I Tracking is mimicking a market index, with a smaller number of stocks. I Solve min w ( w-w b ) Ω( w-w b ), w 1 = 1....
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This note was uploaded on 10/16/2010 for the course STAT 244 taught by Professor Dr.velu during the Summer '10 term at Stanford.

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