Robustifying Conditional Portfolio Decisions via Optimal Transport

arXiv:2103.16451v3 Announce Type: replace-cross
Abstract: We propose a data-driven portfolio selection model that integrates side information, conditional estimation and robustness using the framework of distributionally robust optimization. Conditioning on the observed side information, the portfolio manager solves an allocation problem that minimizes the worst-case conditional risk-return trade-off, subject to all possible perturbations of the covariate-return probability distribution in an optimal transport ambiguity set. Despite the non-linearity of the objective function in the probability measure, we show that the distributionally robust …

abstract arxiv case data data-driven decisions framework information manager math.oc optimization portfolio q-fin.pm risk robust robustness stat.ml trade trade-off transport type via