Models and optimization of portfolios with impact

• Grant number: 10/17980-0
• Support Opportunities: Research Grants - Visiting Researcher Grant - International
• Start date: February 01, 2011
• End date: March 15, 2011
• Field of knowledge: Physical Sciences and Mathematics - Mathematics - Applied Mathematics
• Principal Investigator: José Mário Martinez Perez
• Grantee: José Mário Martinez Perez
• Visiting researcher: Nataša Krejić
• Visiting researcher institution: University of Novi Sad, Serbia
• Host Institution: Instituto de Matemática, Estatística e Computação Científica (IMECC). Universidade Estadual de Campinas (UNICAMP). Campinas , SP, Brazil

Abstract

In a recent work, the visiting professor, jointly with the doctoral student L. F. Bueno, Prof. Ernesto Birgin and I introduced a method for portfolio optimization considering impact costs. Treatment of impact is based in this work on well known proposals by authors like Almgreen and Green. These proposals simply add the impact on the transaction cost using ad hoc parameters that are empirically justified. The limitations of this formulation motivate us to reconsider the problem trying to use the correct phenomenological status for the impacts. This means that the price growth motivated by a large demand of the agent should be modeled by a correct mode of pricing, instead of just adding an empirical formula to the cost. The main difficulty consists in associating the "correct" model with a feasible and fast optimization scheme. During this short visit pretend to discuss further this approach. That is already being considered by our team by e-mail contact. (AU)