Nonlinear Theory and Its Applications, IEICE
Special section on Recent Progress in Nonlinear Theory and Its Applications
Nonlinear portfolio model and its rebalancing strategy
Satoshi InoseTomoya SuzukiKazuo Yamanaka
Author information

Volume 4 (2013) Issue 4 Pages 351-364

Download PDF (626K) Contact us

A nonlinear portfolio model was formulated by applying a nonlinear prediction method and its prediction error to the Markowitz mean-variance portfolio model. Also, the Sharpe ratio, which is a typical evaluation function of portfolio optimization, was modified to adopt stock-trading commissions and the trading-unit system, which are inevitable for portfolio rebalancing in real investment. Then, we discussed the best rebalancing frequency from the viewpoint of the trade-off between prediction accuracy and rebalancing costs. By investment simulations based on real stock data, we confirmed that shorter-term rebalancing is more effective even if we are required to pay higher commissions because short-term nonlinear prediction works better to estimate future return rates and to reduce investment risks.

Information related to the author
© 2013 The Institute of Electronics, Information and Communication Engineers
Previous article Next article

Recently visited articles