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Treatment of Fixed Transaction Costs in Barra Optimizer

categories: RMA, Alternatives, Equities, Currencies, Barra Open Optimizer, Credit, Fixed Income, Multi-Asset Class, Derivatives, Research Paper, KOPMAN Leonid, LIU Scott, general

This paper deals with fixed transaction costs in the context of portfolio optimization. These are transaction costs that do not depend on the traded amount. We show how such costs need to be taken into account during the portfolio optimization process, and describe the algorithm Barra Optimizer uses to address the costs. Computational results demonstrate the performance of the algorithm.

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