We analyze a methodology for portfolio selection based on the independent component analysis. In this paper parametric and non-parametric approaches are used for capturing the behavior of independent components that generate the distribution of asset returns. Although the setup is quite general, we focus mainly on the numerical issues encountered for parametric models and suggest the inclusion of a penalty function in the optimization problem.
Portfolio selection with independent component analysis / A. Hitaj, L. Mercuri, E. Rroji. - In: FINANCE RESEARCH LETTERS. - ISSN 1544-6123. - 15(2015 Nov), pp. 146-159. [10.1016/j.frl.2015.09.005]
Portfolio selection with independent component analysis
L. Mercuri
;
2015
Abstract
We analyze a methodology for portfolio selection based on the independent component analysis. In this paper parametric and non-parametric approaches are used for capturing the behavior of independent components that generate the distribution of asset returns. Although the setup is quite general, we focus mainly on the numerical issues encountered for parametric models and suggest the inclusion of a penalty function in the optimization problem.
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