OpenIM The Open Investment Model

SD-05.3 — Rebalancing

Business Domain: BD-05 Portfolio Management (Front office) · Applies: BOTH

Purpose

Restores a portfolio to its target weights when drift or cash flows have moved it out of tolerance. Rebalancing is the discipline that keeps the live portfolio aligned to the target SD-05.1 built — and it is a discipline, because every rebalance has a cost, and the decision is always the cost of rebalancing weighed against the cost of not. SD-05.3 owns the operational rebalancing; BD-01 sets the rebalancing policy the mandate carries.

Service Operations

  • Operate the rebalancing policy — run calendar rebalancing (fixed dates) or percentage-range / corridor rebalancing (rebalance when an asset breaches a tolerance band), per the mandate’s policy.
  • Calibrate corridor widths — set the operational tolerance bands from transaction costs, asset volatility, correlation and risk tolerance.
  • Detect drift and make the rebalance decision — identify breaches and weigh the cost of rebalancing against the cost of not rebalancing.
  • Generate the rebalance trade list — the orders that restore the portfolio to target.
  • Apply tax-aware rebalancing — for a taxable portfolio, defer or shape rebalancing to manage realised gains and harvest losses.
  • Run synthetic rebalancing — where the rebalance is expressed through a derivative overlay rather than physical trades, in conjunction with SD-05.4.

Inputs and outputs

  • Inputs: the target weights (SD-05.1); the live weights and drift triggers (SD-05.2); the rebalancing policy from the mandate (BD-01); transaction-cost estimates; tax lots.
  • Outputs: the rebalance trade list — consumed by BD-06 Trading & Execution — and the rebalance-cost analysis.

Entities

  • Consumes: Portfolio / Mandate (E-03), Holding / Position (E-04, book = ibor), Benchmark / Index (E-10); the SD-05.1 target weights; the SD-05.2 live weights and drift triggers.
  • Owns: none — the rebalance trade list is an analytical artefact.

Standards

  • The CFA Institute treatment of rebalancing — calendar versus percentage-of-portfolio / corridor rebalancing, and the corridor-width calibration trade-offs. No single external standard governs the rebalancing decision.

Open extensions

  • The boundary with SD-05.4 on synthetic rebalancing — the rebalancing overlay.
  • The split with BD-01 — BD-01 sets the rebalancing policy in the mandate; SD-05.3 calibrates and executes it.

Built from open-investment-model v0.3.0 · f7452ad