Portfolio Selection with Independent Component Analysis

10 Pages Posted: 9 Sep 2015

See all articles by Asmerilda Hitaj

Asmerilda Hitaj

Università degli Studi di Milano-Bicocca - Dipartimento di Statistica e Metodi Quantitativi

Lorenzo Mercuri

University of Milan

Edit Rroji

Polytechnic University of Milan - Department of Mathematics

Date Written: July 11, 2015

Abstract

We analyze a methodology for portfolio selection based on the Independent Component Analysis. In this paper parametric and non-parametric approaches are used for capturing the behavior of independent components that generate the distribution of asset returns. Although the setup is quite general, we focus mainly on the numerical issues encountered for parametric models and suggest the inclusion of a penalty function in the optimization problem.

Keywords: Independent Components, Portfolio Allocation, Infinitely Divisible Distributions

JEL Classification: C10

Suggested Citation

Hitaj, Asmerilda and Mercuri, Lorenzo and Rroji, Edit, Portfolio Selection with Independent Component Analysis (July 11, 2015). Finance Research Letters, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2658382

Asmerilda Hitaj

Università degli Studi di Milano-Bicocca - Dipartimento di Statistica e Metodi Quantitativi ( email )

Milano, 20126
Italy

Lorenzo Mercuri (Contact Author)

University of Milan ( email )

Via Festa del Perdono, 7
Milan, 20122
Italy

Edit Rroji

Polytechnic University of Milan - Department of Mathematics ( email )

Via Bonardi, 9
Milano, MI 20133
Italy

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