Portfolio Optimization with Sparse Multivariate Modelling

Portfolio optimization approaches inevitably rely on multivariate modeling of markets and the economy. In this paper, we address three sources of error related to the modeling of these complex systems: 1. oversimplifying hypothesis; 2. uncertainties resulting from parameters' sampling error; 3. intrinsic non-stationarity of these systems. For what concerns point 1. we propose a L0-norm sparse elliptical modeling and show that sparsification is effective. The effects of points 2. and 3. are quant...