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Deformed exponentials and portfolio selection

Teleinformatics Engineering Department, Federal University of Ceará, Campus do Pici, Bloco 722, CP 6005, Fortaleza, Ceará 60440-900, Brazil

E-mail Address: anaflaviapaivar@gmail.com

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Igor M. Guerreiro

Teleinformatics Engineering Department, Federal University of Ceará, Campus do Pici, Bloco 722, CP 6005, Fortaleza, Ceará 60440-900, Brazil

E-mail Address: igor@gtel.ufc.br

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Charles Casimiro Cavalcante

Teleinformatics Engineering Department, Federal University of Ceará, Campus do Pici, Bloco 722, CP 6005, Fortaleza, Ceará 60440-900, Brazil

E-mail Address: charles@gtel.ufc.br

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https://doi.org/10.1142/S0129183118500298Cited by:6 (Source: Crossref)

Abstract

In this paper, we present a method for portfolio selection based on the consideration on deformed exponentials in order to generalize the methods based on the gaussianity of the returns in portfolio, such as the Markowitz model. The proposed method generalizes the idea of optimizing mean-variance and mean-divergence models and allows a more accurate behavior for situations where heavy-tails distributions are necessary to describe the returns in a given time instant, such as those observed in economic crises. Numerical results show the proposed method outperforms the Markowitz portfolio for the cumulated returns with a good convergence rate of the weights for the assets which are searched by means of a natural gradient algorithm.

Keywords:

PACS: 89.65.Gh, 89.70.−a, 02.40.Ky

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