Adaptive Configuration Oracle for Online Portfolio Selection Methods
This work addresses the problem of adaptive parameter configuration for portfolio managers and researchers, but it is incremental as it builds on existing optimization techniques.
The paper tackles the challenge of parameter tuning for online portfolio selection algorithms in non-stationary financial markets by proposing an adaptive Bayesian optimization oracle based on Gaussian processes, achieving improved performance on equity and index data.
Financial markets are complex environments that produce enormous amounts of noisy and non-stationary data. One fundamental problem is online portfolio selection, the goal of which is to exploit this data to sequentially select portfolios of assets to achieve positive investment outcomes while managing risks. Various algorithms have been proposed for solving this problem in fields such as finance, statistics and machine learning, among others. Most of the methods have parameters that are estimated from backtests for good performance. Since these algorithms operate on non-stationary data that reflects the complexity of financial markets, we posit that adaptively tuning these parameters in an intelligent manner is a remedy for dealing with this complexity. In this paper, we model the mapping between the parameter space and the space of performance metrics using a Gaussian process prior. We then propose an oracle based on adaptive Bayesian optimization for automatically and adaptively configuring online portfolio selection methods. We test the efficacy of our solution on algorithms operating on equity and index data from various markets.