Portfolio Selection with Independent Component Analysis
10 Pages Posted: 9 Sep 2015
Date Written: July 11, 2015
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
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