Transaction-Cost-Aware Optimization

Install and import#

bash

npm install fintech-algorithms

import { optimizeTransactionCostAware } from "fintech-algorithms/portfolio-construction/practical-constraints/transaction-cost-aware-optimization";

Signature#

optimizeTransactionCostAware(mu, covariance, lambdaRisk, x0, buyCost, sellCost, options)

Parameters#

Name	Type	Notes
`mu`	`unknown`
`covariance`	`unknown`
`lambdaRisk`	`unknown`
`x0`	`unknown`
`buyCost`	`unknown`
`sellCost`	`unknown`
`options`	`{ cashIndex?: number; costHorizon?: string; maxIterations?: number }`	optional

Worked example#

executed Captured by running this function on the input its own test provides. Real output of real code — but not asserted against a published figure.

Input#

[0.08, 0.04, 0]

covariance

[
  [0.04, 0, 0],
  [0, 0.01, 0],
  [0, 0, 0]
]

lambdaRisk

0.0005

[600, 400, 100]

buyCost

[0.001, 0.002, 0]

sellCost

[0.001, 0.002, 0]

options

{
  "cashIndex": 2
}

Call#

optimizeTransactionCostAware(mu, covariance, lambdaRisk, x0, buyCost, sellCost, options)

Returns#

object with 15 fields: status, weights, trade, buy, sell, directCost, auxiliaryCost, budgetResidual, …

{
  "status": "optimal",
  "weights": [957.3853839647959, 141.74071207539012, 0],
  "trade": [357.3853839647959, -258.2592879246099, -100],
  "buy": [357.3853839647959, 0, 0],
  "sell": [0, 258.2592879246099, 100],
  "directCost": 0.8739039598140157,
  "auxiliaryCost": 0.8739039598140157,
  "budgetResidual": 0,
  "objective": 62.95436762449867,
  "iterations": 523,
  "cashIndex": 2,
  "costHorizon": "per-rebalance",
  "currentWealth": 1100,
  "cashBalance": 0
}

Showing 14 of 15 fields.

Other exports#

This module also exports auditTradeParts. Every module additionally exports run as an alias of its primary function, and a meta object carrying its catalog id, domain, family, shape and article URL.

Diagrams#

How it works#

This page states the contract — how to call it correctly. The article explains the concept: why it works, and where it breaks.

Read the article →

References#

MOSEK Portfolio Optimization Cookbook, Chapter 6 — MOSEK ApS.
Boyd et al., Multi-Period Trading via Convex Optimization — Stephen Boyd and collaborators.
Google discovery status