Deep Learning for Portfolio Optimisation
12 Pages Posted: 23 Jun 2020
Date Written: May 29, 2020
We adopt deep learning models to directly optimize the portfolio Sharpe ratio. The framework we present circumvents the requirements for forecasting expected returns and allows us to directly optimize portfolio weights by updating model parameters. Instead of selecting individual assets, we trade Exchange-Traded Funds (ETFs) of market indices to form a portfolio. Indices of different asset classes show robust correlations and trading them substantially reduces the spectrum of available assets to choose from. We compare our method with a wide range of algorithms with results showing that our model obtains the best performance over the testing period, from 2011 to the end of April 2020, including the financial instabilities of the first quarter of 2020. A sensitivity analysis is included to understand the relevance of input features and we further study the performance of our approach under different cost rates and different risk levels via volatility scaling.
Keywords: Portfolio Optimization, Deep Learning, Machine Learning, ETFs
JEL Classification: C00, G11
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