Risk-Adjusted On-line Portfolio Selection

Robert Dochow (), Esther Mohr () and Günter Schmidt
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Robert Dochow: Saarland University
Esther Mohr: University of Mannheim
Günter Schmidt: University of Cape Town

A chapter in Operations Research Proceedings 2013, 2014, pp 113-119 from Springer

Abstract: Abstract The objective of on-line portfolio selection is to design provably good algorithms with respect to some on-line or offline benchmark. Existing algorithms do not consider ‘trading risk’. We present a novel risk-adjusted portfolio selection algorithm (RAPS). RAPS incorporates the ‘trading risk’ in terms of the maximum possible loss. We show that RAPS performs provably ‘as well as’ the Universal Portfolio (UP) [4] in the worst-case. We empirically evaluate RAPS on historical NYSE data. Results show that RAPS is able to beat BCRP as well as several ‘follow-the-winner’ algorithms from the literature, including UP. We conclude that RAPS outperforms in case the assets in the portfolio follow a positive trend.

Keywords: Terminal Wealth; Competitive Analysis; Trading Period; Allocation Vector; Machine Learning Community (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:spr:oprchp:978-3-319-07001-8_16

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DOI: 10.1007/978-3-319-07001-8_16

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