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portfolio
György Ottucsák1
László Györfi
e-mail: oti@szit.bme.hu
www.szit.bme.hu/˜oti
www.szit.bme.hu/˜oti/portfolio
Ottucsák, Györfi Principal component and constantly re-balanced portfolio
Investment in the stock market: Growth rate
The model:
d assets
(j) 1 (j)
Wn = ln Sn
n
(j) 1 (j)
Wn = ln Sn
n
After n day
(j)
X
Sn = S0 b (j) Sn
j
After n day
(j)
X
Sn = S0 b (j) Sn
j
1
(j) (j)
1 1 (j) (j)
ln max S0 b Sn ≤ ln Sn ≤ ln dS0 max b Sn
n j n n j
1
(j) (j)
1 1 (j) (j)
ln max S0 b Sn ≤ ln Sn ≤ ln dS0 max b Sn
n j n n j
1 1 (j) 1
max ln S0 b (j) + ln Sn ≤ln Sn
j n n n
1 1 (j)
≤ max ln(dS0 b (j) ) + ln Sn
j n n
1
(j) (j)
1 1 (j) (j)
ln max S0 b Sn ≤ ln Sn ≤ ln dS0 max b Sn
n j n n j
1 1 (j) 1
max ln S0 b (j) + ln Sn ≤ln Sn
j n n n
1 1 (j)
≤ max ln(dS0 b (j) ) + ln Sn
j n n
1 1 (j)
lim ln Sn = lim max ln Sn = max W (j)
n→∞ n n→∞ j n j
1
(j) (j)
1 1 (j) (j)
ln max S0 b Sn ≤ ln Sn ≤ ln dS0 max b Sn
n j n n j
1 1 (j) 1
max ln S0 b (j) + ln Sn ≤ln Sn
j n n n
1 1 (j)
≤ max ln(dS0 b (j) ) + ln Sn
j n n
1 1 (j)
lim ln Sn = lim max ln Sn = max W (j)
n→∞ n n→∞ j n j
The model:
(1) (d)
Let xi = (xi , . . . xi ) the return vector on trading period i,
where
(j)
(j) Si
xi = (j)
.
Si−1
is the price relatives of two consecutive days.
The model:
(1) (d)
Let xi = (xi , . . . xi ) the return vector on trading period i,
where
(j)
(j) Si
xi = (j)
.
Si−1
is the price relatives of two consecutive days.
(j)
xi is the factor by which capital invested in stock j grows during
the market period i
The model:
(1) (d)
Let xi = (xi , . . . xi ) the return vector on trading period i,
where
(j)
(j) Si
xi = (j)
.
Si−1
is the price relatives of two consecutive days.
(j)
xi is the factor by which capital invested in stock j grows during
the market period i
One of the simplest dynamic portfolio strategy is the
Constantly Re-balanced Portfolio (CRP):
The model:
(1) (d)
Let xi = (xi , . . . xi ) the return vector on trading period i,
where
(j)
(j) Si
xi = (j)
.
Si−1
is the price relatives of two consecutive days.
(j)
xi is the factor by which capital invested in stock j grows during
the market period i
One of the simplest dynamic portfolio strategy is the
Constantly Re-balanced Portfolio (CRP):
The CRP is the optimal portfolio for special market process, where
X1 , X2 , . . . is independent and identically distributed (i.i.d.)
Log-optimum portfolio b∗
The CRP is the optimal portfolio for special market process, where
X1 , X2 , . . . is independent and identically distributed (i.i.d.)
Log-optimum portfolio b∗
The CRP is the optimal portfolio for special market process, where
X1 , X2 , . . . is independent and identically distributed (i.i.d.)
Log-optimum portfolio b∗
The CRP is the optimal portfolio for special market process, where
X1 , X2 , . . . is independent and identically distributed (i.i.d.)
Log-optimum portfolio b∗
1 1
lim ln Sn ≤ lim ln Sn∗ almost surely
n→∞ n n→∞ n
1 1
lim ln Sn ≤ lim ln Sn∗ almost surely
n→∞ n n→∞ n
and
1
lim ln Sn∗ = W ∗ almost surely,
n→∞ n
where
W ∗ = E{ln hb∗ , X1 i}
is the maximal growth rate of any portfolio.
1 1
arg max − E{(hb , X1 i − 2)2 } + =
b 2 2
arg min E{(hb , X1 i − 2)2 },
b
that is, we are looking for the portfolio which minimize the
expected squared error.
Ottucsák, Györfi Principal component and constantly re-balanced portfolio
Conditions of the model:
Assume that
the assets are arbitrarily divisible,
Assume that
the assets are arbitrarily divisible,
the assets are available in unbounded quantities at the current
price at any given trading period,
Assume that
the assets are arbitrarily divisible,
the assets are available in unbounded quantities at the current
price at any given trading period,
there are no transaction costs,
(go to Session 1 today at 17.30)
Assume that
the assets are arbitrarily divisible,
the assets are available in unbounded quantities at the current
price at any given trading period,
there are no transaction costs,
(go to Session 1 today at 17.30)
the behavior of the market is not affected by the actions of
the investor using the strategy under investigation.
S1 = S0 · hb1 , x1 i
S1 = S0 · hb1 , x1 i
for the second day, S1 new initial capital, the portfolio vector
b2 = b(x1 )
S2 = S0 · hb1 , x1 i · hb(x1 ) , x2 i .
S1 = S0 · hb1 , x1 i
for the second day, S1 new initial capital, the portfolio vector
b2 = b(x1 )
S2 = S0 · hb1 , x1 i · hb(x1 ) , x2 i .
nth day a portfolio strategy bn = b(x1 , . . . , xn−1 ) = b(xn−1
1 )
Yn D E
Sn = S0 b(xi−1
1 ) , xi =
i=1
S1 = S0 · hb1 , x1 i
for the second day, S1 new initial capital, the portfolio vector
b2 = b(x1 )
S2 = S0 · hb1 , x1 i · hb(x1 ) , x2 i .
nth day a portfolio strategy bn = b(x1 , . . . , xn−1 ) = b(xn−1
1 )
Yn D E
Sn = S0 b(xi−1
1 ) , xi = S0 e nWn (B)
i=1
with the average growth rate
n
1 X D i−1 E
Wn (B) = ln b(x1 ) , xi .
n
i=1
Xn−1
1 = X1 , . . . , Xn−1
Algoet and Cover (1988): If Sn∗ = Sn (B∗ ) denotes the capital after
day n achieved by a log-optimum portfolio strategy B∗ , then for
any portfolio strategy B with capital Sn = Sn (B) and for any
process {Xn }∞−∞ ,
1 1
lim sup ln Sn − ln Sn∗ ≤ 0 almost surely
n→∞ n n
fix integers k, ` = 1, 2, . . .
elementary portfolios
choose the radius rk,` > 0 such that for any fixed k,
lim rk,` = 0.
`→∞
fix integers k, ` = 1, 2, . . .
elementary portfolios
choose the radius rk,` > 0 such that for any fixed k,
lim rk,` = 0.
`→∞
2
rk,` = 0.0001 · d · k · `,
2
rk,` = 0.0001 · d · k · `,
AAY of kernel based semi-log-optimal portfolio is 128%
2
rk,` = 0.0001 · d · k · `,
AAY of kernel based semi-log-optimal portfolio is 128%
double the capital
2
rk,` = 0.0001 · d · k · `,
AAY of kernel based semi-log-optimal portfolio is 128%
double the capital
MORRIS had the best AAY, 20%
2
rk,` = 0.0001 · d · k · `,
AAY of kernel based semi-log-optimal portfolio is 128%
double the capital
MORRIS had the best AAY, 20%
the BCRP had average AAY 24%
k 1 2 3 4 5
`
1 20% 19% 16% 16% 16%
2 118% 77% 62% 24% 58%
3 71% 41% 26% 58% 21%
4 103% 94% 63% 97% 34%
5 134% 102% 100% 102% 67%
6 140% 125% 105% 108% 87%
7 148% 123% 107% 99% 96%
8 132% 112% 102% 85% 81%
9 127% 103% 98% 74% 72%
10 123% 92% 81% 65% 69%