Econometric Model Used in the Portfolio Optimization over Several Periods

Abstract

"The classic problem of optimizing a portfolio can be extended to a multi-stage programming problem. The purpose of the multi-period portfolio optimization problem is to determine the optimal portfolio for a certain finite time horizon. In a multi-period model in which investors are allowed to change the composition of the portfolio, it is essential to take into account trading costs, a solution in this regard being the use of tree-type scenarios. The study undertaken by the authors considered the construction of a portfolio optimization model in case there is a certain constraint on returns. ARMA type processes were used to model the conditional mean equation."