 On solving robust log-optimal portfolio: A supporting hyperplane approximation approachChung-Han Hsieh European Journal of Operational Research, 2024, vol. 313, issue 3, 1129-1139 Abstract: A log-optimal portfolio is any portfolio that maximizes the expected logarithmic growth (ELG) of an investor’s wealth, which typically assumes prior knowledge of the true return distribution. However, in practice, return distributions are often ambiguous; i.e., the true distribution is unknown, making this problem challenging to solve. This paper proposes a supporting hyperplane approximation approach, reformulating a class of distributional robust log-optimal portfolio problems with polyhedron ambiguity sets into tractable robust linear programs. An efficient algorithm is presented to determine the optimal number of hyperplanes. Additionally, to adapt to the constantly changing market, we propose an online trading algorithm using a sliding window approach to solve a sequence of robust linear programs, offering significant computational advantages. The effectiveness of the proposed approach is supported by empirical studies using historical stock price data. Keywords: Portfolio optimization; Distributionally robust optimization; Kelly criterion; Robust linear programming; Approximation theory (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:313:y:2024:i:3:p:1129-1139 DOI: 10.1016/j.ejor.2023.09.040 Access Statistics for this article European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati More articles in European Journal of Operational Research from Elsevier |
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