TY - GEN
T1 - A receding horizon control approach to portfolio optimization using a risk-minimax objective for wealth tracking
AU - Sridharan, Srikanth
AU - Chitturi, Divakar
AU - Rodriguez, Armando
PY - 2011/11/7
Y1 - 2011/11/7
N2 - In this paper, we consider the problem of financial portfolio optimization. A hierarchical framework is used, and receding horizon control (RHC) ideas are exploited to pose and solve two relevant constrained optimization problems. We first present the classic problem of wealth maximization subject to risk constraints. We also formulate a new approach to portfolio optimization which attempts to minimize the peak risk over the prediction horizon, while trying to track a wealth objective. This approach is designed to assist investors that might be unable to precisely specify their risk tolerance. We compare this methodology with the classical approach. It is concluded that this approach may be particularly beneficial during downturns appreciably limiting losses during downturns while providing most of the upturn benefits.
AB - In this paper, we consider the problem of financial portfolio optimization. A hierarchical framework is used, and receding horizon control (RHC) ideas are exploited to pose and solve two relevant constrained optimization problems. We first present the classic problem of wealth maximization subject to risk constraints. We also formulate a new approach to portfolio optimization which attempts to minimize the peak risk over the prediction horizon, while trying to track a wealth objective. This approach is designed to assist investors that might be unable to precisely specify their risk tolerance. We compare this methodology with the classical approach. It is concluded that this approach may be particularly beneficial during downturns appreciably limiting losses during downturns while providing most of the upturn benefits.
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U2 - 10.1109/CCA.2011.6044440
DO - 10.1109/CCA.2011.6044440
M3 - Conference contribution
AN - SCOPUS:80155146938
SN - 9781457710629
T3 - Proceedings of the IEEE International Conference on Control Applications
SP - 1282
EP - 1287
BT - 2011 IEEE International Conference on Control Applications, CCA 2011
T2 - 2011 20th IEEE International Conference on Control Applications, CCA 2011
Y2 - 28 September 2011 through 30 September 2011
ER -