generate_objective constructs an optimization objective from a rebalance date, portfolio holdings, decision variables, and portfolio information. Objective subclasses specialize the optimization goal. section 13.3.2
Common objective implementations include:
- MinTaxObjective minimizes total tax from sales, including negative tax consequences from realizing losses; it uses holding periods and effective tax rates. section 13.3.2
- MinTrackingErrorObjective minimizes deviation from target weights using asset covariance information and a quadratic tracking-error expression. section 13.3.2
- The objective operates alongside constraints that enforce investment, position, trading, and target-deviation rules. section 13.3.2
Tax-aware versus target-aware rebalancing
A tax-minimizing objective evaluates sales across lots with different purchase dates and gains or losses. A tracking-error objective instead compares optimized asset weights with target weights through a covariance-adjusted quadratic penalty. section 13.3.2 section 13.3.2
