PORTFOLIO OPTIMIZATION, HIDDEN MARKOV MODELS, AND TECHNICAL ANALYSIS OF P&F-CHARTS

Robert Elliott () and Juri Hinz ()
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Robert Elliott: Faculty of Management, University of Calgary, Calgary, Alberta, Canada
Juri Hinz: Mathematisches Institut, Universität Tübingen, 72076 Tübingen, Germany

International Journal of Theoretical and Applied Finance (IJTAF), 2002, vol. 05, issue 04, 385-399

Abstract: In this work we introduce an adaptive method of portfolio optimization. The basic idea is to describe essential movements of the stock price using a hidden Markov model and to calculate the optimal portfolio using a recursive algorithm. The portfolio optimization is adaptive in the sense that the standard EM-algorithm fits the model to historical data, which improves the portfolio performance.

Keywords: Portfolio optimization; hidden Markov models (search for similar items in EconPapers)
Date: 2002
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Persistent link: https://EconPapers.repec.org/RePEc:wsi:ijtafx:v:05:y:2002:i:04:n:s0219024902001493

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DOI: 10.1142/S0219024902001493

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