Deformed exponentials and portfolio selection

Ana Flávia P. Rodrigues (), Igor M. Guerreiro () and Charles Casimiro Cavalcante ()
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Ana Flávia P. Rodrigues: Teleinformatics Engineering Department, Federal University of Ceará, Campus do Pici, Bloco 722, CP 6005, Fortaleza, Ceará 60440-900, Brazil
Igor M. Guerreiro: Teleinformatics Engineering Department, Federal University of Ceará, Campus do Pici, Bloco 722, CP 6005, Fortaleza, Ceará 60440-900, Brazil
Charles Casimiro Cavalcante: Teleinformatics Engineering Department, Federal University of Ceará, Campus do Pici, Bloco 722, CP 6005, Fortaleza, Ceará 60440-900, Brazil

International Journal of Modern Physics C (IJMPC), 2018, vol. 29, issue 03, 1-17

Abstract: In this paper, we present a method for portfolio selection based on the consideration on deformed exponentials in order to generalize the methods based on the gaussianity of the returns in portfolio, such as the Markowitz model. The proposed method generalizes the idea of optimizing mean-variance and mean-divergence models and allows a more accurate behavior for situations where heavy-tails distributions are necessary to describe the returns in a given time instant, such as those observed in economic crises. Numerical results show the proposed method outperforms the Markowitz portfolio for the cumulated returns with a good convergence rate of the weights for the assets which are searched by means of a natural gradient algorithm.

Keywords: Deformed exponential; q-Gaussian; portfolio selection; mean-divergence model (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (4)

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DOI: 10.1142/S0129183118500298

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