Abstract
AbstractThis paper proposes a regression-based simulation algorithm for multi-period mean-variance portfolio optimization problems with constraints under a high-dimensional setting. For a high-dimensional portfolio, the least squares Monte Carlo algorithm for portfolio optimization can perform less satisfactorily with finite sample paths due to the estimation error from the ordinary least squares (OLS) in the regression steps. Our algorithm, which resolves this problem e, that demonstrates significant improvements in numerical performance for the case of finite sample path and high dimensionality. Specifically, we replace the OLS by the least absolute shrinkage and selection operator (lasso). Our major contribution is the proof of the asymptotic convergence of the novel lasso-based simulation in a recursive regression setting. Numerical experiments suggest that our algorithm achieves good stability in both low- and higher-dimensional cases.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
