Short-term Portfolio Optimization using Doubly Regularized Exponential Growth Rate

Quanlong Guan, Jinneng He, Zhao-Rong Lai, Yuyu Zhou, Quming Jiang, Ziliang Chen

Abstract: In the realm of short-term portfolio optimization, the integration of machine learning with exponential growth rate techniques is gaining prominence. This paper introduces a novel approach for short-term portfolio optimization, termed Short-term Portfolio Optimization using Doubly Regularized EGR (SPODR), to address the challenges posed by limited data availability. SPODR utilizes radial basis functions for the effective identification of market trends, enabling improved stock market forecasts. The approach uniquely combines ℓ1 and ℓ2-regularization, adhering to empirical financial principles, to strike a balance between risk and return in short-term portfolios. A key aspect of SPODR is addressing the complexity of its ElasticNet-like objective, which poses a challenge for traditional methods due to its online learning nature. To overcome this, we have developed an algorithm based on the log barrier interior-point method. This algorithm is adept at efficiently optimizing portfolio allocation, taking into account the specific constraints inherent in our approach. Extensive comparative experiments across five benchmark datasets demonstrate that SPODR significantly outperforms existing short-term portfolio optimization models. It achieves a right balance between return and risk. Furthermore, SPODR showcases efficient computational speed, enhancing its applicability in real-world financial settings.