%0 Journal Article
%A Sun, Walter
%A Fan, Ayres
%A Chen, Li-Wei
%A Schouwenaars, Tom
%A Albota, Marius A.
%T Optimal Rebalancing for Institutional Portfolios
%D 2006
%R 10.3905/jpm.2006.611801
%J The Journal of Portfolio Management
%P 33-43
%V 32
%N 2
%X Institutional fund managers generally rebalance using ad hoc methods such as calendar periods or tolerance band triggers. Another approach is to quantify the cost of a rebalancing strategy in terms of risk-adjusted returns net of transaction costs. An optimal rebalancing strategy that actively seeks to minimize that cost uses certainty-equivalents and the transaction costs associated with a policy to define a cost-to-go function. Stochastic programming is then used to minimize expected cost-to-go. Monte Carlo simulations demonstrate that the method outperforms traditional rebalancing strategies such as periodic and 5% tolerance rebalancing.
%U https://jpm.pm-research.com/content/iijpormgmt/32/2/33.full.pdf