Portfolio Optimization in the Financial Market with Correlated Returns under Constraints, Transaction Costs and Different Rates for Borrowing and Lending

Abstract

In this work, we consider the optimal portfolio selection problem under hard constraints on trading amounts, transaction costs and different rates for borrowing and lending when the risky asset returns are serially correlated. No assumptions about the correlation structure between different time points or about the distribution of the asset returns are needed. The problem is stated as a dynamic tracking problem of a reference portfolio with desired return. Our approach is tested on a set of a real data from Russian Stock Exchange MICEX.