The growth-optimal portfolio optimization strategy pioneered by Kelly is based on constant portfolio rebalancing which makes it sensitive to transaction fees. We examine the effect of fees on an example of a risky asset with a binary return distribution and show that the fees may give rise to an optimal period of portfolio rebalancing. The optimal period is found analytically in the case of log...

SCALABLE, EFFICIENT AND OPTIMAL DISCRETE-TIME REBALANCING ALGORITHMS FOR LOG-OPTIMAL INVESTMENT PORTFOLIO

Abstract We analyze the errors arising from discrete rebalancing of the hedging portfolio in exponential Lévy models, and establish the rates at which the expected squared discretization error goes to zero when the length of the rebalancing step decreases. Different hedging strategies and option pay-offs are considered. The case of digital options is studied in detail, and it turns out that in ...

W e study the problem of rebalancing a replicated tree, while the tree is concurrently being updated in a P2P manner. Tree updates are asynchronous and commutative, as we aim at eventual consistency. However, rebalancing requires strong synchronisation, because only replicas that have performed the same rebalances can communicate with one another. In order to scale to large networks, we propose...

We consider the sensitivity of conditional value-at-risk (CVaR) with respect to the tail index assuming regularly varying tails and exponential and faster-than-exponential tail decay for the return distribution. We compare it to the CVaR sensitivity with respect to the scale parameter for stable Paretian, the Student’s t, and generalized Gaussian laws and discuss implications for the modeling o...