English

Data-Driven Long-Term Asset Allocation with Tsallis Entropy Regularization

Optimization and Control 2025-09-30 v1

Abstract

This paper addresses the problem of dynamic asset allocation under uncertainty, which can be formulated as a linear quadratic (LQ) control problem with multiplicative noise. To handle exploration exploitation trade offs and induce sparse control actions, we introduce Tsallis entropy as a regularization term. We develop an entropy regularized policy iteration scheme and provide theoretical guarantees for its convergence. For cases where system dynamics are unknown, we further propose a fully data driven algorithm that estimates Q functions using an instrumental variable least squares approach, allowing efficient and stable policy updates. Our framework connects entropy-regularized stochastic control with model free reinforcement learning, offering new tools for intelligent decision making in finance and automation.

Keywords

Cite

@article{arxiv.2509.23062,
  title  = {Data-Driven Long-Term Asset Allocation with Tsallis Entropy Regularization},
  author = {Haoran Zhang and Wenhao Zhang and Xianping Wu},
  journal= {arXiv preprint arXiv:2509.23062},
  year   = {2025}
}

Comments

27 pages, 4 figures

R2 v1 2026-07-01T06:00:12.920Z