Clustering and portfolio selection problems: a unified framework

DOI10.1016/J.COR.2020.104891zbMATH Open1458.91197arXiv1907.07101OpenAlexW2999420093WikidataQ126355075 ScholiaQ126355075MaRDI QIDQ2297578FDOQ2297578

Authors: Justo Puerto, Moisés Rodríguez-Madrena, Andrea Scozzari 

Publication date: 20 February 2020

Published in: Computers \& Operations Research (Search for Journal in Brave)

Abstract: Given a set of assets and an investment capital, the classical portfolio selection problem consists in determining the amount of capital to be invested in each asset in order to build the most profitable portfolio. The portfolio optimization problem is naturally modeled as a mean-risk bi-criteria optimization problem where the mean rate of return of the portfolio must be maximized whereas a given risk measure must be minimized. Several mathematical programming models and techniques have been presented in the literature in order to efficiently solve the portfolio problem. A relatively recent promising line of research is to exploit clustering information of an assets network in order to develop new portfolio optimization paradigms. In this paper we endow the assets network with a metric based on correlation coefficients between assets' returns, and show how classical location problems on networks can be used for clustering assets. In particular, by adding a new criterion to the portfolio selection problem based on an objective function of a classical location problem, we are able to measure the effect of clustering on the selected assets with respect to the non-selected ones. Most papers dealing with clustering and portfolio selection models solve these problems in two distinct steps: cluster first and then selection. The innovative contribution of this paper is that we propose a Mixed-Integer Linear Programming formulation for dealing with this problem in a unified phase. The effectiveness of our approach is validated reporting some preliminary computational experiments on some real financial dataset.

Full work available at URL: https://arxiv.org/abs/1907.07101

Recommendations

• Cluster analysis for portfolio optimization
• Efficient cluster-based portfolio optimization
• A network-based data mining approach to portfolio selection via weighted clique relaxations
• The Confrontation of Two Clustering Methods in Portfolio Management: Ward’s Method Versus DCA Method
• The optimal portfolio with a modified covariance matrix using the clustering method

zbMATH Keywords

clusteringportfolio selectionmulticriteria optimizationconditional value at risk\(p\)-median problem on networks

Mathematics Subject Classification ID

Multi-objective and goal programming (90C29) Statistical methods; risk measures (91G70) Portfolio theory (91G10) Mixed integer programming (90C11)

Cites Work

• Coherent measures of risk
• A mixed integer linear model for clustering with variable selection
• Collective dynamics of `small-world' networks
• Introduction to Econophysics
• Multicriteria Optimization
• Title not available (Why is that?)
• An Algorithmic Approach to Network Location Problems. II: Thep-Medians
• A new method for mean-variance portfolio optimization with cardinality constraints
• Conditional value at risk and related linear programming models for portfolio optimization
• Estimation for Markowitz Efficient Portfolios
• A clustering approach for scenario tree reduction: an application to a stochastic programming portfolio optimization problem
• A discussion of scalarization techniques for multiple objective integer programming
• A mixed integer linear programming formulation of the optimal mean/Value-at-Risk portfolio problem
• Linear and mixed integer programming for portfolio optimization
• Solving large \(p\)-median problems with a radius formulation
• Heuristics for cardinality constrained portfolio optimization
• Cluster analysis for portfolio optimization
• Categorical data fuzzy clustering: an analysis of local search heuristics
• On exact and approximate stochastic dominance strategies for portfolio selection
• A network-based data mining approach to portfolio selection via weighted clique relaxations
• Equal risk bounding is better than risk parity for portfolio selection
• Linear vs. quadratic portfolio selection models with hard real-world constraints

Cited In (11)

• The Confrontation of Two Clustering Methods in Portfolio Management: Ward’s Method Versus DCA Method
• A clustering approach for scenario tree reduction: an application to a stochastic programming portfolio optimization problem
• A tail-revisited Markowitz mean-variance approach and a portfolio network centrality
• A network-based data mining approach to portfolio selection via weighted clique relaxations
• Cluster analysis for portfolio optimization
• Neighborhood decomposition-driven variable neighborhood search for capacitated clustering
• A matheuristic for large-scale capacitated clustering
• Portfolio optimization through a network approach: network assortative mixing and portfolio diversification
• A clustering‐based review on project portfolio optimization methods
• A combinatorial optimization approach to scenario filtering in portfolio selection
• A clustering-based portfolio strategy incorporating momentum effect and market trend prediction

This page was built for publication: Clustering and portfolio selection problems: a unified framework

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q2297578)