reason to use a narrower corridor:
lower transaction costs, because it will not cost very much to rebalance more frequently
my question is, does it make sense? won’t a narrower corridor result in more frequent rebalancing and therefore higher transaction costs?
I believe that they mean lower costs per transaction.
thanks for the insight.
If it helps, I just look at this question as “how expensive is it to rebalance this asset”
More expensive = rebalance less frequently = wider corridor
Having said that, I reserve the right to completely blow such questions on the actual exam!