| dc.description.abstract | The thesis will examine the performance of various rebalancing strategies in portfolios with two
and four risky assets, where all capital is committed to risky assets. The primary objective
is to demonstrate that portfolio rebalancing adds value for investors, even in the presence of
transaction costs. We provide a comprehensive analysis identifying the optimal rebalancing strategy
for a multi-asset portfolio. Within the mean-variance framework, the optimal strategy without
considering transaction costs is to maintain constant weights in the asset allocation, irrespective of
the performance of the risky assets. This necessitates rebalancing to restore the portfolio to its target
weights, unlike a passive portfolio where weights remain unchanged throughout the investment
period. The scarcity of analytical solutions for the optimal portfolio choice problem is largely due
to the complexities introduced by transaction costs, which necessitate the use of intricate numerical
methods within the domain of stochastic optimal control theory. Furthermore, the thesis draws
inspiration from Dichtl, Drobetz, and Wambach (2014) and examines the performance of various
rebalancing strategies for fully invested portfolios consisting of two risky assets, that incorporate
transaction costs. We employ the methodology of Zakamulin (2024) to illustrate that the optimal
portfolio choice problem can be solved using a practical and easily applicable method, derived from
a single-period model. Our findings are consistent with those of Dichtl et al. (2014) and Zakamulin
(2024), indicating that the Buy-and-Hold strategy is sub-optimal | |
