| 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. | |
