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$$l_1$$ l 1 -Regularization for multi-period portfolio selection

Author

Listed:
  • Stefania Corsaro

    (University of Naples “Parthenope”)

  • Valentina De Simone

    (University of Campania “Luigi Vanvitelli”)

  • Zelda Marino

    (University of Naples “Parthenope”)

  • Francesca Perla

    (University of Naples “Parthenope”)

Abstract

In this work we present a model for the solution of the multi-period portfolio selection problem. The model is based on a time consistent dynamic risk measure. We apply $$l_1$$ l 1 -regularization to stabilize the solution process and to obtain sparse solutions, which allow one to reduce holding costs. The core problem is a nonsmooth optimization one, with equality constraints. We present an iterative procedure based on a modified Bregman iteration, that adaptively sets the value of the regularization parameter in order to produce solutions with desired financial properties. We validate the approach showing results of tests performed on real data.

Suggested Citation

  • Stefania Corsaro & Valentina De Simone & Zelda Marino & Francesca Perla, 2020. "$$l_1$$ l 1 -Regularization for multi-period portfolio selection," Annals of Operations Research, Springer, vol. 294(1), pages 75-86, November.
    • Handle: RePEc:spr:annopr:v:294:y:2020:i:1:d:10.1007_s10479-019-03308-w
    DOI: 10.1007/s10479-019-03308-w
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    References listed on IDEAS

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    11. Stefania Corsaro & Valentina Simone, 2019. "Adaptive $$l_1$$ l 1 -regularization for short-selling control in portfolio selection," Computational Optimization and Applications, Springer, vol. 72(2), pages 457-478, March.
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    Cited by:

    1. Zhang, Ning & Su, Xiaoman & Qi, Shuyuan, 2023. "An empirical investigation of multiperiod tail risk forecasting models," International Review of Financial Analysis, Elsevier, vol. 86(C).
    2. Stefania Corsaro & Valentina De Simone & Zelda Marino & Salvatore Scognamiglio, 2022. "l 1 -Regularization in Portfolio Selection with Machine Learning," Mathematics, MDPI, vol. 10(4), pages 1-15, February.

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