PT  - JOURNAL ARTICLE
AU  - Jan Bertus Molenkamp
TI  - Model-Based Transition Management
AID  - 10.3905/jpm.2006.661369
DP  - 2006 Oct 31
TA  - The Journal of Portfolio Management
PG  - 37--45
VI  - 33
IP  - 1
4099  - https://pm-research.com/content/33/1/37.short
4100  - https://pm-research.com/content/33/1/37.full
AB  - Once the optimal strategic benchmark is set for institutional assets, given the characteristics of the liabilities, the challenge is to reallocate all the assets to the benchmark weights. Transitions typically increase transaction costs and tracking error beyond the risk of the normal investment processes, and both transaction costs and tracking error have a significant influence on performance. Suggested here is a model to deal more systematically with transition issues that is independent of the trigger of the transition (such as a rebalancing strategy). The model is less complex than others suggested so far and is well-suited to deal with multiple assets. A multi-asset example shows it is easy to implement this approach.TOPICS: Portfolio management/multi-asset allocation, risk management