Sparse Portfolio Selection via Non-convex Fraction Function

MaRDI QIDQ6297015zbMATH OpenFDO

Authors Angang Cui, Ji-Gen Peng, Cheng-yi Zhang, Hai-Yang Li, M. Wen

Publication date 27 January 2018

Abstract: In this paper, a continuous and non-convex promoting sparsity fraction function is studied in two sparse portfolio selection models with and without short-selling constraints. Firstly, we study the properties of the optimal solution to the problem $(F{P}_{a,lambda,eta})$ including the first-order and the second optimality condition and the lower and upper bound of the absolute value for its nonzero entries. Secondly, we develop the thresholding representation theory of the problem $(F{P}_{a,lambda,eta})$. Based on it, we prove the existence of the resolvent operator of gradient of $P_a(x)$, calculate its analytic expression, and propose an iterative fraction penalty thresholding (IFPT) algorithm to solve the problem $(F{P}_{a,lambda,eta})$. Moreover, we also prove that the value of the regularization parameter $lambda>0$ can not be chosen too large. Indeed, there exists $$ such that the optimal solution to the problem $(F{P}_{a,lambda,eta})$ is equal to zero for any $$. At last, inspired by the thresholding representation theory of the problem $(F{P}_{a,lambda,eta})$, we propose an iterative nonnegative fraction penalty thresholding (INFPT) algorithm to solve the problem $(F{P}_{a,lambda,eta}^{geq})$. Empirical results show that our methods, for some proper $a>0$, perform effective in finding the sparse portfolio weights with and without short-selling constraints.

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