Universal portfolio based on on-line learning of linear function

ZHANG Wei-guo, ZHANG Yong, XU Wei-jun, YANG Xing-yu

Systems Engineering - Theory & Practice ›› 2012 ›› Issue (8) : 1647-1654.

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Systems Engineering - Theory & Practice ›› 2012 ›› Issue (8) : 1647-1654. DOI: 10.12011/1000-6788(2012)8-1647

Universal portfolio based on on-line learning of linear function

  • ZHANG Wei-guo, ZHANG Yong, XU Wei-jun, YANG Xing-yu
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Abstract

The return of the best constant rebalanced portfolio (BCRP) has exponential growth rate with time. It is a hot topic to research on-line sequential investment strategy that has the same growth rate as BCRP. Based on the on-line learning of linear function, we firstly present a new on-line portfolio selection strategy, where the linear coefficient is the middle of an interval. And the interval is related to price relative and the return. Using the relative entropy as the distance function of two portfolios, we further prove that the new on-line portfolio is universal. Finally, take experiment on several portfolios that consisted of two stocks or three stocks, and compare the new strategy with Cover's UP strategy. The results show that this new strategy can obtain better performance. Therefore, this paper provides a new method and basis for decision-making for on-line sequential investment, and thus has great practical significance.

Key words

BCRP / linear learning function / relative entropy function / universal portfolio

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ZHANG Wei-guo , ZHANG Yong , XU Wei-jun , YANG Xing-yu. Universal portfolio based on on-line learning of linear function. Systems Engineering - Theory & Practice, 2012(8): 1647-1654 https://doi.org/10.12011/1000-6788(2012)8-1647

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