Portfolio rebalancing with VaR as risk measure

Portfolio rebalancing is an important task in portfolio management. In the present study, we investigate how to perform rebalancing at the least cost. In the present paper, we use VaR as a risk measure and formulate portfolio rebalancing problems with an optimization model by considering the requirements with risk and return of a portfolio as the constraints and rebalancing cost as the objective. Since the model built herein is a nonlinear integer programming model, conventional combinatorial optimization methods are ineffective. In the present paper, we first propose a soft method for solving this complicated model and then test the model and the soft method by conducting portfolio rebalancing experiments on the New York stock market.