Author:
Bianchi Francesco,Mercuri Lorenzo,Rroji Edit
Abstract
AbstractIn this paper we consider a portfolio selection problem defined for irregularly spaced observations. We use the Independent Component Analysis for the identification of the dependence structure and continuous-time GARCH models for the marginals. We discuss both estimation and simulation of market prices in a context where the time grid of price quotations differs across assets. We present an empirical analysis of the proposed approach using two high-frequency datasets that provides better out-of-sample results than competing portfolio strategies except for the case of severe market conditions with frequent rebalancements.
Funder
Gruppo Nazionale per l’Analisi Matematica, la Probabilità e le loro Applicazioni
Publisher
Springer Science and Business Media LLC
Reference29 articles.
1. Acharyya, R.: A New Approach for Blind Source Separation of Convolutive Sources: Wavelet Based Separation Using Shrinkage Function. VDM, Verlag Dr, Muller (2008)
2. Babaei, S., Sepehri, M.M., Babaei, E.: Multi-objective portfolio optimization considering the dependence structure of asset returns. Eur. J. Oper. Res. 244(2), 525–539 (2015)
3. Back, A.D., Weigend, A.S.: Discovering structure in finance using independent component analysis. In: Decision Technologies for Computational Finance, pp. 309–322, Springer. (1998)
4. Bollerslev, T.: A conditionally heteroskedastic time series model for speculative prices and rates of return. Rev. Econ. Stat. 69(3), 542–47 (1987)
5. Brockwell, P., Chadraa, E., Lindner, A.: Continuous-time GARCH processes. Ann. Appl. Prob. 16(2), 790–826 (2006)