An open-source implementation of the critical-line algorithm for portfolio optimization

DOI10.3390/A6010169MaRDI QIDQ1736552zbMATH OpenOpenAlexWikidataFDO

Authors D. H. Bailey, Marcos López de Prado

Publication date 26 March 2019

Published in Algorithms (Search for Journal in Brave)

Copyright license Creative Commons Attribution 4.0 International

Full work available at URL https://doi.org/10.3390/a6010169

zbMATH Keywords

constrained efficient frontierKuhn-Tucker conditionsportfolio optimizationportfolio selectionquadratic programmingrisk aversionturning point

Mathematics Subject Classification ID

Quadratic programming (90C20) Portfolio theory (91G10) Numerical methods (including Monte Carlo methods) (91G60)

Review text

Summary: Portfolio optimization is one of the problems most frequently encountered by financial practitioners. The main goal of this paper is to fill a gap in the literature by providing a well-documented, step-by-step open-source implementation of \textit{Critical Line Algorithm} (CLA) in scientific language. The code is implemented as a Python class object, which allows it to be imported like any other Python module, and integrated seamlessly with pre-existing code. We discuss the logic behind CLA following the algorithm's decision flow. In addition, we developed several utilities that support finding answers to recurrent practical problems. We believe this publication will offer a better alternative to financial practitioners, many of whom are currently relying on generic-purpose optimizers which often deliver suboptimal solutions. The source code discussed in this paper can be downloaded at the authors' websites (see Appendix).

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Cites work

• scientific article; zbMATH DE number 3233290 (Why is no real title available?)
• Risk and asset allocation.
• Sequential Minimax Search for a Maximum
• The Simplex Method for Quadratic Programming

Cited in

(3)

• Multicriteria portfolio construction with Python
• CLA
• Portfolio selection revisited

Describes a project that uses

Uses Software

• Python

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