English

Integrating prediction in mean-variance portfolio optimization

Portfolio Management 2022-12-01 v3

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.

Keywords

Cite

@article{arxiv.2102.09287,
  title  = {Integrating prediction in mean-variance portfolio optimization},
  author = {Andrew Butler and Roy H. Kwon},
  journal= {arXiv preprint arXiv:2102.09287},
  year   = {2022}
}
R2 v1 2026-06-23T23:17:01.786Z