Transaction Cost Penalty

Problem

Compute the transaction cost of a rebalance.

Return cost_rate * sum(abs(w_new[i] - w_old[i])) over all positions, the proportional cost of the traded notional.

Hint

Transaction costs scale with total turnover.

case 1

in: [[0.5,0.5],[0.6,0.4],0.01]

expected: 0.0019999999999999996

case 2

in: [[1,0],[0,1],0.05]

expected: 0.1

case 3

in: [[0.25,0.25,0.5],[0.25,0.25,0.5],0.1]

expected: 0

Starter codePython

def transaction_cost_penalty(w_old, w_new, cost_rate):
    # Your code here
    pass

3 test cases · run your code against them in the editor