{"title":"Comparative study of information measures in portfolio optimization problems","authors":"Luckshay Batra, H. C. Taneja","doi":"10.1007/s12652-024-04766-2","DOIUrl":null,"url":null,"abstract":"<p>This paper presents a rich class of information theoretical measures designed to enhance the accuracy of portfolio risk assessments. The Mean-Variance model, pioneered by Harry Markowitz, revolutionized the financial sector as the first formal mathematical method to risk-averse investing in portfolio optimization theory. We analyze the effectiveness of this with the models that replace expected portfolio variance with measures of information (uncertainty of the portfolio allocations to the different assets) and five major practical issues. The empirical analysis is carried out on the historical data of Indian financial stock indices by application of portfolio optimization problem with information measures as the objective function and constraints derived from the return and the risk. Our findings indicate that the information measures with parameters can be used as an adequate supplement to traditional portfolio optimization models such as the mean-variance model.</p>","PeriodicalId":14959,"journal":{"name":"Journal of Ambient Intelligence and Humanized Computing","volume":"14 1","pages":""},"PeriodicalIF":0.0000,"publicationDate":"2024-03-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Ambient Intelligence and Humanized Computing","FirstCategoryId":"94","ListUrlMain":"https://doi.org/10.1007/s12652-024-04766-2","RegionNum":3,"RegionCategory":"计算机科学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"Computer Science","Score":null,"Total":0}
引用次数: 0
Abstract
This paper presents a rich class of information theoretical measures designed to enhance the accuracy of portfolio risk assessments. The Mean-Variance model, pioneered by Harry Markowitz, revolutionized the financial sector as the first formal mathematical method to risk-averse investing in portfolio optimization theory. We analyze the effectiveness of this with the models that replace expected portfolio variance with measures of information (uncertainty of the portfolio allocations to the different assets) and five major practical issues. The empirical analysis is carried out on the historical data of Indian financial stock indices by application of portfolio optimization problem with information measures as the objective function and constraints derived from the return and the risk. Our findings indicate that the information measures with parameters can be used as an adequate supplement to traditional portfolio optimization models such as the mean-variance model.
期刊介绍:
The purpose of JAIHC is to provide a high profile, leading edge forum for academics, industrial professionals, educators and policy makers involved in the field to contribute, to disseminate the most innovative researches and developments of all aspects of ambient intelligence and humanized computing, such as intelligent/smart objects, environments/spaces, and systems. The journal discusses various technical, safety, personal, social, physical, political, artistic and economic issues. The research topics covered by the journal are (but not limited to):
Pervasive/Ubiquitous Computing and Applications
Cognitive wireless sensor network
Embedded Systems and Software
Mobile Computing and Wireless Communications
Next Generation Multimedia Systems
Security, Privacy and Trust
Service and Semantic Computing
Advanced Networking Architectures
Dependable, Reliable and Autonomic Computing
Embedded Smart Agents
Context awareness, social sensing and inference
Multi modal interaction design
Ergonomics and product prototyping
Intelligent and self-organizing transportation networks & services
Healthcare Systems
Virtual Humans & Virtual Worlds
Wearables sensors and actuators