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Autonomous Sparse Mean-CVaR Portfolio Optimization

Optimization and Control 2024-05-15 v1 Machine Learning Portfolio Management

Abstract

The 0\ell_0-constrained mean-CVaR model poses a significant challenge due to its NP-hard nature, typically tackled through combinatorial methods characterized by high computational demands. From a markedly different perspective, we propose an innovative autonomous sparse mean-CVaR portfolio model, capable of approximating the original 0\ell_0-constrained mean-CVaR model with arbitrary accuracy. The core idea is to convert the 0\ell_0 constraint into an indicator function and subsequently handle it through a tailed approximation. We then propose a proximal alternating linearized minimization algorithm, coupled with a nested fixed-point proximity algorithm (both convergent), to iteratively solve the model. Autonomy in sparsity refers to retaining a significant portion of assets within the selected asset pool during adjustments in pool size. Consequently, our framework offers a theoretically guaranteed approximation of the 0\ell_0-constrained mean-CVaR model, improving computational efficiency while providing a robust asset selection scheme.

Keywords

Cite

@article{arxiv.2405.08047,
  title  = {Autonomous Sparse Mean-CVaR Portfolio Optimization},
  author = {Yizun Lin and Yangyu Zhang and Zhao-Rong Lai and Cheng Li},
  journal= {arXiv preprint arXiv:2405.08047},
  year   = {2024}
}

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