Portfolio optimization based on network topology
Sai-Ping Li and
Physica A: Statistical Mechanics and its Applications, 2019, vol. 515, issue C, 671-681
The structure and dynamics of complex network systems are of current research interest. We illustrate the dependency between the network topology and its function, considering the complex financial network as a typical example. The networks are built from the full cross-correlation matrix and the global-motion one respectively, aiming at filtering the noise interference of the dynamic networks and understanding the driving mechanism of different interactions. Dynamic structural features of the core and periphery nodes are investigated, and it is demonstrated that the peripherality in a network can be used as an indicator for identifying the optimal assets. With the network filtering approach and peripherality measure, portfolios with different performances are constructed. Compared to the full cross-correlation matrix, the global-motion one shows significant advantages in the portfolio optimization, and the underlying mechanism is carefully analyzed. These methods are also with potential significance to the understanding of other social, biological and transport systems.
Keywords: Dynamic complex networks; Topological structures; Portfolio optimization; Econophysics (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:515:y:2019:i:c:p:671-681
Access Statistics for this article
Physica A: Statistical Mechanics and its Applications is currently edited by K. A. Dawson, J. O. Indekeu, H.E. Stanley and C. Tsallis
More articles in Physica A: Statistical Mechanics and its Applications from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().