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Application of noise level estimation for portfolio optimization

In: Practical Fruits of Econophysics

Author

Listed:
  • Krzysztof Urbanowicz

    (Max Planck Institute for the Physics of Complex Systems)

  • Janusz A. Hołyst

    (Warsaw University of Technology)

Abstract

Summary Time changes of noise level at Warsaw Stock Market are analyzed using a recently developed method basing on properties of the coarse grained entropy. The condition of the minimal noise level is used to build an efficient portfolio. Our noise level approach seems to be a much better tool for risk estimations than standard volatility parameters. Implementation of a corresponding threshold investment strategy gives positive returns for historical data.

Suggested Citation

  • Krzysztof Urbanowicz & Janusz A. Hołyst, 2006. "Application of noise level estimation for portfolio optimization," Springer Books, in: Hideki Takayasu (ed.), Practical Fruits of Econophysics, pages 236-240, Springer.
  • Handle: RePEc:spr:sprchp:978-4-431-28915-9_43
    DOI: 10.1007/4-431-28915-1_43
    as

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