Integrating prediction in mean-variance portfolio optimization
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Abstract: Prediction models are traditionally optimized independently from their use in the asset allocation decision-making process. We address this shortcoming and present a framework for integrating regression prediction models in a mean-variance optimization (MVO) setting. Closed-form analytical solutions are provided for the unconstrained and equality constrained MVO case. For the general inequality constrained case, we make use of recent advances in neural-network architecture for efficient optimization of batch quadratic-programs. To our knowledge, this is the first rigorous study of integrating prediction in a mean-variance portfolio optimization setting. We present several historical simulations using both synthetic and global futures data to demonstrate the benefits of the integrated approach.
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Cited in
(8)- scientific article; zbMATH DE number 1179948 (Why is no real title available?)
- Distributionally robust end-to-end portfolio construction
- Factor-based portfolio optimization
- Artificial intelligence in portfolio formation and forecast: Using different variance-covariance matrices
- End-to-end risk budgeting portfolio optimization with neural networks
- A decision-focused learning framework for goal-based investing
- Integration of support vector machines and mean-variance optimization for capital allocation
- A survey of contextual optimization methods for decision-making under uncertainty
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