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Data-Driven Dynamic Portfolio Selection with Vine Copula Simulation and Reinforcement Learning

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  • Gabriel M. J. Gelissen
  • Fengyi Yuan

Abstract

We develop a data-driven approach to dynamic portfolio selection that combines vine-copula simulation with reinforcement learning. The investor has constant relative risk aversion and maximises expected terminal utility with a running penalty on the conditional value-at-risk (CVaR) of one-period losses. We estimate a conditional vine model from historical returns and use it to generate joint scenarios for CVaR evaluation and conditional paths for training a recurrent portfolio policy. Under uniform local derivative bounds, we propagate edgewise pair-copula parameter errors through the conditional transforms to obtain power-law stability bounds in Hellinger distance and total variation. In a finite-horizon investment model, we combine these estimates with a marginal and structural approximation budget to bound policy values, optimal values and the true-market loss of policies selected under a fitted model, with separate simulation and numerical optimisation terms. On a seven-asset panel comprising US and Chinese equities and gold, the selected ensemble of ten trained policies achieves a compound annual growth rate of 34.13% and a Sharpe ratio of 2.31 over 22 complete monthly holding periods, exceeding the corresponding values of six classical and vine-based benchmarks. Combining simulated and historical training data reduces monthly target-to-target turnover by 41.5% relative to training on historical data alone, while maintaining comparable growth.

Suggested Citation

  • Gabriel M. J. Gelissen & Fengyi Yuan, 2026. "Data-Driven Dynamic Portfolio Selection with Vine Copula Simulation and Reinforcement Learning," Papers 2610.20037, arXiv.org.
  • Handle: RePEc:arx:papers:2610.20037
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    References listed on IDEAS

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    1. Anthony Coache & Sebastian Jaimungal & 'Alvaro Cartea, 2022. "Conditionally Elicitable Dynamic Risk Measures for Deep Reinforcement Learning," Papers 2206.14666, arXiv.org, revised May 2023.
    2. Ahmad Aghapour & Erhan Bayraktar & Fengyi Yuan, 2025. "Dynamic data generation and dynamic portfolio selection: an application of a score-based diffusion model," Papers 2507.09916, arXiv.org, revised Aug 2026.
    3. Maziar Sahamkhadam & Andreas Stephan, 2023. "Portfolio optimization based on forecasting models using vine copulas: An empirical assessment for global financial crises," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 42(8), pages 2139-2166, December.
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