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Warm-start heuristic for stochastic portfolio optimization with fixed and proportional transaction costs. (English) Zbl 1300.91043
Summary: We consider a probabilistic portfolio optimization model including fixed and proportional transaction costs. We derive a deterministic equivalent of the probabilistic model for fat-tailed portfolio returns. We develop a method which finds provably near-optimal solutions in minimal amount of time for industry-sized (up to 2000 assets) problems. To solve the mixed-integer nonlinear programming (MINLP) deterministic formulation equivalent to the stochastic problem, we design a mathematical programming-based warm-start heuristic. The tests show the computational efficiency of the heuristic which is more than an order of magnitude faster than Cplex in finding high-quality solutions.

MSC:
91G10 Portfolio theory
90C15 Stochastic programming
90C59 Approximation methods and heuristics in mathematical programming
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