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A portfolio optimization model for minimizing soft margin-based generalization bound

Author

Listed:
  • Minghu Ha

    (Hebei University
    Hebei University of Engineering)

  • Yang Yang

    (Hebei University)

  • Chao Wang

    (Hebei University of Engineering)

Abstract

Roy’s safety first (RSF) criterion aims to minimize the shortfall probability in portfolio selection. Smoothed safety first portfolio optimization model is a useful tool to realize RSF criterion by minimizing an approximation of the empirical shortfall probability. However, the generalization performance of the smoothed safety first portfolio optimization model may be poor when the number of the samples is finite. In this paper, a soft margin-based generalization bound on the shortfall probability is obtained firstly. Then, a portfolio optimization model is built by minimizing the soft margin-based generalization bound. Finally, the good generalization performance of the portfolio optimization model is verified by experiments.

Suggested Citation

  • Minghu Ha & Yang Yang & Chao Wang, 2017. "A portfolio optimization model for minimizing soft margin-based generalization bound," Journal of Intelligent Manufacturing, Springer, vol. 28(3), pages 759-766, March.
    • Handle: RePEc:spr:joinma:v:28:y:2017:i:3:d:10.1007_s10845-014-1011-7
    DOI: 10.1007/s10845-014-1011-7
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    References listed on IDEAS

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    4. Victor DeMiguel & Lorenzo Garlappi & Francisco J. Nogales & Raman Uppal, 2009. "A Generalized Approach to Portfolio Optimization: Improving Performance by Constraining Portfolio Norms," Management Science, INFORMS, vol. 55(5), pages 798-812, May.
    5. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
    6. M. Ryan Haley & Charles Whiteman, 2008. "Generalized Safety First and a New Twist on Portfolio Performance," Econometric Reviews, Taylor & Francis Journals, vol. 27(4-6), pages 457-483.
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    Full references (including those not matched with items on IDEAS)

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