Randomized Signature Methods in Optimal Portfolio Selection
38 Pages Posted: 17 Jan 2024
Date Written: December 26, 2023
Abstract
We present convincing empirical results on the application of Randomized Signature Methods for non-linear, non-parametric drift estimation for a multi-variate financial market. Even though drift estimation is notoriously ill defined due to small signal to noise ratio, one can still try to learn optimal non-linear maps from data to future returns for the purposes of portfolio optimization. Randomized Signatures, in constrast to classical signatures, allow for high dimensional market dimension and provide features on the same scale. We do not contribute to the theory of Randomized Signatures here, but rather present our empirical findings on portfolio selection in real world settings including real market data and transaction costs.
Keywords: Machine Learning, Randomized Signature, Drift estimation, Returns forecast, Portfolio Optimization, Path-dependent Signal
JEL Classification: C21, C22, G11, G14, G17
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